Copyright and the Music Marketplace

u n i t e d s t a t e s c o p y r i g h t o f f i c e

a report of the register of copyrights february 2015

u n i t e d s t a t e s c o p y r i g h t o f f i c e

a report of the register of copyrights february 2015

Second printing (May 2016)

For a list of corrections from initial printing,

see http://www.copyright.gov/policy/musiclicensingstudy/errata.pdf.

U.S. Copyright Office Copyright and the Music Marketplace

Preface

Few would dispute that music is culturally essential and economically important to the

world we live in, but the reality is that both music creators and the innovators that

support them are increasingly doing business in legal quicksand. As this report makes

clear, this state of affairs neither furthers the copyright law nor befits a nation as creative

as the United States.

The Copyright Office has previously highlighted the outmoded rules for the licensing of

musical works and sound recordings as an area in significant need of reform.

Moreover, the Office has underscored the need for a comprehensive approach to

This is especially true in the case of music

licensing—the problems in the music marketplace need to be evaluated as a whole,

rather than as isolated or individual concerns of particular stakeholders.

While this view is hardly a surprising one for the U.S. Copyright Office, it is no simple

matter to get one’s arms around our complex system of music licensing, or to formulate

potential avenues for change. For this reason, in early 2014, the Office undertook this

study—with all industry participants invited to participate—to broadly consider the

existing music marketplace.

This report is the result of that effort. In addition to identifying the shortcomings of the

current methods of licensing music in the United States, it offers an in-depth analysis of

the law and industry practices, as well as a series of balanced recommendations to

improve the music marketplace.

Acknowledgments

This report was prepared by the Office of the General Counsel, U.S. Copyright Office,

following an exhaustive analysis of industry practices and considerable dialogue with

music creators and the businesses that represent and invest in their interests, as well as

music services and distributors and other interested parties. I am indebted to the staff

who worked so tirelessly and thoughtfully to see the report to fruition and am confident

that it will be a major resource for both Congress and the public.

See Maria A. Pallante, The Next Great Copyright Act, 36 COLUM. J.L. & ARTS 315, 334-35 (2013)

(“To make a long story short, Congress could make a real difference regarding gridlock in the

music marketplace.”).

See The Register’s Call for Updates to U.S. Copyright Law: Hearing Before the Subcomm. on Courts,

Intell. Prop. and the Internet of the H. Comm. on the Judiciary, 113th Cong. 6 (2013) (statement of

Maria A. Pallante, Register of Copyrights).

See 17 U.S.C. § 701(b)(4) (noting that the Register of Copyrights shall conduct studies regarding

U.S. Copyright Office Copyright and the Music Marketplace

I doubt the report would have been possible without Jacqueline C. Charlesworth,

General Counsel and Associate Register, who oversaw the complex research, public

hearings, writing, and recommendations. It is difficult to say with certainty whether it is

Jacqueline’s outstanding skill set as a lawyer or her extensive background in the music

industry that proved most valuable for this project, but either way she has produced a

report that is fair, rational, and forward-thinking, a fitting framework for a field as

culturally beloved and economically important as music is to the United States.

I am similarly indebted to Sarang (Sy) Damle, Deputy General Counsel, who provided

additional leadership and numerous critical contributions, including deft drafting,

dispassionate analysis, and deep regard for the intersection of music and technology.

I am very grateful as well for the contributions of Regan Smith, Assistant General

Counsel, who oversaw the editing process and the final production of the report.

Assistant General Counsel Steve Ruwe helped with the hearings and provided

substantial research and analysis, especially in the area of statutory licensing. Likewise,

Attorney-Advisors Rick Marshall and John Riley assisted with hearings, research and

writing; John also prepared the helpful and impressive charts on the licensing and

ratesetting processes that are included in the report. I also wish to recognize Michelle

Choe, who is with the Copyright Office as a Barbara A. Ringer Honors Program Fellow,

for her substantial research and writing efforts. Donald Stevens, also a Ringer Fellow,

assisted with particular questions of international law, and Law Clerks Andrew Moore,

Kyle Petersen, Maryna Koberidze, and Megan Hartnett provided valuable research

support, for which I am thankful.

As always, the Copyright Office received significant and timely support from colleagues

outside of Washington, D.C. I so appreciate Professor Rush Hicks and Luke Gilfeather

of the Mike Curb College of Entertainment and Music Business at Belmont University

for facilitating the roundtable held in historic Columbia Studio A on Music Row in

Nashville. My thanks and appreciation, as well, to Professors David Nimmer and Neil

Netanel of the UCLA School of Law for helping to facilitate the Los Angeles roundtable,

and Professor Barton Beebe of NYU School of Law for his assistance with the New York

City roundtable. I would particularly like to acknowledge Representative Jerrold

Nadler, who visited the New York roundtable to share his views about the importance

of these issues.

Last but not least, I am indebted to the many organizations and individuals who

provided written commentary and shared their frustrations, insights, and experiences in

the roundtable discussions. I hope this report helps.

Maria A. Pallante

U.S. Copyright Office

U.S. Copyright Office Copyright and the Music Marketplace

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................. 1

I. INTRODUCTION .............................................................................................................. 12

A. Study History .......................................................................................................... 14

B. Licensing and Ratesetting Charts ......................................................................... 15

II. MUSIC LICENSING LANDSCAPE ................................................................................ 16

A. Copyright Overview ............................................................................................... 16

1. Brief History of Copyright Protection for Music ...................................... 16

2. Musical Works Versus Sound Recordings ................................................. 18

3. Key Players in the Music Marketplace ....................................................... 18

a. Songwriters .......................................................................................... 18

b. Music Publishers ................................................................................. 19

c. Performing Rights Organizations (“PROs”) .................................... 20

d. Mechanical Rights Administrators ................................................... 21

e. Recording Artists and Producers ...................................................... 21

f. Record Companies .............................................................................. 22

g. Music Providers ................................................................................... 23

h. Consumers ............................................................................................ 24

B. Licensing Musical Works ....................................................................................... 25

1. Exclusive Rights in Musical Works ............................................................ 25

2. Reproduction and Distribution Rights ....................................................... 26

a. Historical Background ........................................................................ 26

b. Mechanical Rights Licensing ............................................................. 28

Statutory Licensing ............................................................................. 28

Voluntary Licenses .............................................................................. 30

Recent Reform Efforts ......................................................................... 31

3. Public Performance Rights ........................................................................... 32

a. The PROs .............................................................................................. 32

b. Antitrust Oversight ............................................................................. 34

Department of Justice Consent Decrees ........................................... 35

Key Antitrust Cases ............................................................................. 38

c. Consent Decree Procedures ............................................................... 40

4. Statutory License for Public and Noncommercial Broadcasting ............ 42

C. Licensing Sound Recordings ................................................................................. 43

1. Exclusive Rights in Sound Recordings ....................................................... 43

2. Reproduction and Distribution Rights ....................................................... 43

3. Public Performance Rights......................................................................... 43

a. Lack of Terrestrial Performance Right .............................................. 43

U.S. Copyright Office Copyright and the Music Marketplace

b. Section 112 and 114 Licenses ............................................................. 46

Interactive/Noninteractive Distinction ............................................. 48

Ratesetting Standards ......................................................................... 49

CRB Ratesetting Proceedings............................................................. 50

Royalty Rates ........................................................................................ 51

c. Privately Negotiated Licenses ........................................................... 52

4. Pre-1972 Sound Recordings ......................................................................... 53

D. Synchronization Rights .......................................................................................... 55

E. Licensing Efficiency and Transparency ............................................................... 58

1. Data Standards .............................................................................................. 59

2. Public Data ..................................................................................................... 62

3. Non-Government Databases ....................................................................... 63

4. International Efforts ...................................................................................... 65

5. Data Sharing Initiatives ................................................................................ 66

III. CHALLENGES OF THE CURRENT SYSTEM .............................................................. 68

A. Compensation and Licensing Disparities ............................................................ 69

1. Effect of Market Trends on Creator Income .............................................. 69

From Physical Formats to Downloads to Streaming ...................... 70 a.

Impact of Music Streaming Models .................................................. 73 b.

Non-Performing Songwriters ............................................................ 78 c.

Additional Considerations ................................................................. 78 d.

Piracy ..................................................................................................... 78

Impact of DMCA Safe Harbors ......................................................... 79

2. Disparate Treatment of Analogous Rights and Uses ............................... 81

Inconsistent Ratesetting Standards ................................................... 81 a.

Different Ratesetting Bodies .............................................................. 83 b.

Pre-1972 Sound Recordings ............................................................... 85 c.

Full Federalization Considerations ................................................... 85

Partial Federalization Alternative ..................................................... 86

Terrestrial Radio Exemption .............................................................. 87 d.

B. Government’s Role in Music Licensing ............................................................... 90

1. PRO Consent Decrees ................................................................................... 90

Royalty Rates ........................................................................................ 91 a.

Rate Court Proceedings ...................................................................... 93 b.

Interim Fees .......................................................................................... 94 c.

Inconsistent Regulation of PROs ....................................................... 95 d.

Parties’ Proposals................................................................................. 96 e.

Complete or Partial Withdrawal of Rights....................................... 97

Elimination Versus Expansion of Consent Decrees ...................... 101

Rate Court Changes .......................................................................... 102

Bundled Licensing ............................................................................. 103

Elimination of Section 114(i) Prohibition ....................................... 104

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2. Mechanical Rights Licensing ..................................................................... 105

Royalty Rates and Standard ............................................................. 105 a.

Administrative Burdens ................................................................... 107 b.

Perceived Unfairness ......................................................................... 108 c.

Lack of Audit Rights .......................................................................... 108

Administrative Issues ....................................................................... 110

Parties’ Proposals............................................................................... 111 d.

Elimination of Statutory License ..................................................... 111

Blanket Licensing .............................................................................. 112

3. Sections 112 and 114 ................................................................................... 114

Royalty Rates ...................................................................................... 114 a.

Interactive/Noninteractive Divide .................................................. 115 b.

Technical Limitations of Section 112 ............................................... 117 c.

Lack of Termination Provision ........................................................ 117 d.

Royalty Distribution Process ........................................................... 118 e.

4. Public and Noncommercial Broadcasting ............................................... 118

5. Concerns Regarding CRB Procedures ...................................................... 119

Inefficiencies and Expense ............................................................... 119 a.

Settlement Obstacles ......................................................................... 121 b.

Discovery Process .............................................................................. 121 c.

C. Licensing Efficiency and Transparency ............................................................. 123

1. Music Data ................................................................................................... 123

Lack of Reliable Public Data ............................................................ 123 a.

Parties’ Views ..................................................................................... 126 b.

2. Usage and Payment Transparency ........................................................... 128

Advances and Equity Deals ............................................................. 128 a.

PRO Distributions ............................................................................. 130 b.

“Pass-Through” Licensing ............................................................... 131 c.

IV. ANALYSIS AND RECOMMENDATIONS .................................................................. 133

A. Guiding Principles ................................................................................................ 134

B. Licensing Parity and Fair Compensation .......................................................... 134

1. Equitable Treatment of Rights and Uses.................................................. 135

Musical Works Versus Sound Recordings ..................................... 135 a.

Terrestrial Radio ................................................................................ 138 b.

Pre-1972 Sound Recordings ............................................................. 140 c.

2. Consistent Ratesetting Standards ............................................................. 142

C. Role of Government in Music Licensing ........................................................... 145

1. Antitrust Considerations ............................................................................ 146

2. The PROs and the Consent Decrees ......................................................... 150

Pandora Analysis ................................................................................ 151 a.

Publisher Withdrawals ..................................................................... 151

Rate Decision ...................................................................................... 153

iii

U.S. Copyright Office Copyright and the Music Marketplace

Availability of Song Data .................................................................. 155

PRO Ratesetting Process ................................................................... 155 b.

Migrate to Copyright Royalty Board .............................................. 155

Section 114(i) ...................................................................................... 157

Interim Fees ........................................................................................ 157

Partial Withdrawal of Rights ........................................................... 158 c.

Bundled Licensing ............................................................................. 160 d.

3. Mechanical Licensing and Section 115 ..................................................... 162

Free Market Negotiation Versus Collective Administration ....... 162 a.

Publisher Opt-Out Right .................................................................. 164

Full Market Coverage ....................................................................... 165

Cover Recordings .............................................................................. 166

Audiovisual Uses ............................................................................... 167

Shift to Blanket Licensing ................................................................. 169 b.

Ratesetting .......................................................................................... 170 c.

“A s -Needed” Ratesetting .................................................................. 171

Use of Benchmarks ............................................................................ 172

Interim Rates ...................................................................................... 173

Audit Right ......................................................................................... 173 d.

Sunset of Existing Section 115 Licenses .......................................... 174 e.

4. Section 112 and 114 Licenses ..................................................................... 175

Scope of Licenses ............................................................................... 176 a.

Adjust to Include Terrestrial ............................................................ 176

Qualifying Versus Nonqualifying Services ................................... 177

Ratesetting .......................................................................................... 179 b.

Producer Payments ........................................................................... 180 c.

Termination Provision ...................................................................... 181 d.

5. Public and Noncommercial Broadcasting ............................................... 181

D. Licensing Efficiency and Transparency ............................................................. 183

1. Industry Data ............................................................................................... 183

Publicly Accessible Database ........................................................... 183

Adoption of Data Standards ............................................................ 184 b.

2. Fair Reporting and Payment ...................................................................... 186

Writer and Artist Shares ................................................................... 186 a.

Best Practices for Transparency ....................................................... 189 b.

E. An Updated Music Licensing System ................................................................ 189

1. MROs ............................................................................................................ 190

2. The GMRO ................................................................................................... 192

Data-Related Responsibilities .......................................................... 193 a.

Default Licensing and Payment ...................................................... 194 b.

Resources and Funding .................................................................... 196 c.

3. The CRB ........................................................................................................ 197

New Ratesetting Protocol ................................................................. 197 a.

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All-In Rates for Noninteractive Streaming .................................... 198 b.

GMRO Surcharge .............................................................................. 199 c.

Procedural Improvements................................................................ 199 d.

4. Regulatory Implementation ....................................................................... 201

5. Further Evaluation ...................................................................................... 202

APPENDICES

Appendix A: Federal Register Notices

Appendix B: Commenting Parties and Roundtable Participants

Appendix C: Abbreviations

Appendix D: Licensing and Ratesetting Charts

U.S. Copyright Office Copyright and the Music Marketplace

Executive Summary

The United States has the most innovative and influential music culture in the world,

but much of the legal framework for licensing of music dates back to the early part of the

twentieth century, long before the digital revolution in music. Our licensing system is

founded on a view that the music marketplace requires a unique level of government

regulation, much of it reflected in statutory licensing provisions of the Copyright Act.

The Copyright Office believes that the time is ripe to question the existing paradigm for

the licensing of musical works and sound recordings and consider meaningful change.

There is a widespread perception that our licensing system is broken. Songwriters and

recording artists are concerned that they cannot make a living under the existing

structure, which raises serious and systemic concerns for the future. Music publishers

and performance rights organizations are frustrated that so much of their licensing

activity is subject to government control, so they are constrained in the marketplace.

Record labels and digital services complain that the licensing process is burdensome and

inefficient, making it difficult to innovate.

While there is general consensus that the system needs attention, there is less agreement

as to what should be done. In this report, after reviewing the existing framework and

stakeholders’ views, the Copyright Office offers a series of guiding principles and

preliminary recommendations for change. The Office’s proposals are meant to be

contemplated together, rather than individually. With this approach, the Office seeks to

present a series of balanced tradeoffs among the interested parties to create a fairer,

more efficient, and more rational system for all.

A. Guiding Principles

The Copyright Office’s study revealed broad consensus among study participants on

four key principles:

• Music creators should be fairly compensated for their contributions.

• The licensing process should be more efficient.

• Market participants should have access to authoritative data to identify and

license sound recordings and musical works.

• Usage and payment information should be transparent and accessible to

rightsowners.

U.S. Copyright Office Copyright and the Music Marketplace

In addition to the above, based on the record in the proceeding, the Office has identified

several additional principles that it believes should also guide any process of reform.

These are:

• Government licensing processes should aspire to treat like uses of music alike.

• Government supervision should enable voluntary transactions while still

supporting collective solutions.

• Ratesetting and enforcement of antitrust laws should be separately managed and

addressed.

• A single, market-oriented ratesetting standard should apply to all music uses

under statutory licenses.

The Office was guided by all of the above principles in developing its recommendations,

which are summarized below.

B. Licensing Parity and Fair Compensation

Questions of licensing parity and fair compensation are closely tied to the relative

treatment of music rights and rightsholders under the law. The Copyright Office

believes that any overhaul of our music licensing system should strive to achieve greater

consistency in the way it regulates (or does not regulate) analogous platforms and uses.

With that goal in mind, the Office recommends the following:

• Regulate musical works and sound recordings in a consistent manner. The

Office believes that, at least in the digital realm, sound recordings and the

underlying musical works should stand on more equal footing. The Copyright

Office’s approach would offer a free market alternative to musical work owners,

in the form of an opt-out right to withdraw specific categories of rights from

government oversight in key areas where sound recording owners enjoy such

benefits—namely, interactive streaming uses and downloads.

• Extend the public performance right in sound recordings to terrestrial radio

broadcasts. As the Copyright Office has stated repeatedly for many years, the

United States should adopt a terrestrial performance right for sound recordings.

Apart from being inequitable to rightsholders—including by curtailing the

reciprocal flow of royalties into the United States—the exemption of terrestrial

radio from royalty obligations harms competing satellite and internet radio

providers who must pay for the use of sound recordings. Assuming Congress

adopts a terrestrial performance right, it would seem only logical that terrestrial

uses should be included under the section 112 and 114 licenses that govern

internet and satellite radio.

U.S. Copyright Office Copyright and the Music Marketplace

• Fully federalize pre-1972 sound recordings. As it concluded in its 2011 report on

the topic, the Copyright Office believes that pre-1972 recordings—currently

protected only under state law—should be brought within the scope of federal

created sound recordings. The lack of federal protection for pre-1972 sound

recordings impedes a fair marketplace. Record labels and artists are not paid for

performances of these works by digital services, which (at least until recent court

rulings under state law) were considered free from copyright liability on the

sound recording side. At the same time, the owners of the musical works

embodied in these sound recordings are paid for the same uses.

• Adopt a uniform market-based ratesetting standard for all government rates.

While in some cases the law provides that the ratesetting authority should

attempt to emulate a free market, in other cases it imposes a more policy-

oriented approach that has led to below-market rates. There is no policy

justification for a standard that requires music creators to subsidize those who

seek to profit from their works. Accordingly, the Office calls for adoption of a

single rate standard—whether denominated “willing buyer/willing seller” or

“fair market value”—that is designed to achieve rates that would be negotiated

in an unconstrained market.

C. Government’s Role in Music Licensing

The government’s involvement in the music marketplace is unusual and expansive

relative to other kinds of works created and disseminated under the Copyright Act. In

many cases, it compels copyright owners to license their works at government-set rates.

Regulation of music publishers and songwriters is particularly pervasive: the two most

significant areas of their market (mechanical and performance licensing) are subject to

mandatory licensing and ratesetting. Antitrust concerns have been the traditional

rationale for government intervention. To be sure, where particular actors engage in

anticompetitive conduct in violation of antitrust laws, that conduct should be addressed.

But compulsory licensing does more than that—it removes choice and control from all

Regardless of the historical justifications for government intervention, the Copyright

Office believes that in today’s world, certain aspects of the compulsory licensing

processes can and should be relaxed. The below recommendations offer some ideas for

how that might be accomplished in the various areas of the market where there is

government involvement.

Performing Rights Organizations (“PROs”) and the Consent Decrees

Many important issues have been raised in the Department of Justice’s (“DOJ’s”)

parallel consideration of the American Society of Composers, Authors and Publishers

(“ASCAP”) and Broadcast Music, Inc. (“BMI”) consent decrees. The Office endorses that

U.S. Copyright Office Copyright and the Music Marketplace

review, and—in light of the significant impact of the decrees in today’s performance-

driven music market—hopes it will result in a productive reconsideration of the 75-year-

old decrees. At the same time, the Copyright Office observes that it is Congress, not the

DOJ, that has the ability to address the full range of issues that encumber our music

licensing system, which go far beyond the consent decrees. In the area of performance

rights, the Office offers the following recommendations:

• Migrate all ratesetting to the Copyright Royalty Board (“CRB”). The Copyright

Office believes that allegations of anticompetitive conduct are worthy of

evaluation (and, if appropriate, remedial action) separate and apart from the

determination of fair rates for musical works. Each of these two critical policy

objectives merits government attention in its own right. Accordingly, the Office

proposes that the function of establishing rates for the public performance of

musical works—currently the province of federal district courts under the

consent decrees—be migrated to the CRB. Industry ratesetting is, of course, a

primary function of the CRB, and the CRB has the benefit of experience assessing

a broader spectrum of rate-related questions than the federal rate courts, as well

as specific expertise in copyright law and economics.

• Repeal section 114(i) prohibition. Regardless of whether PRO ratesetting is

migrated to the CRB, as further discussed below, the Copyright Office endorses

the proposal that the prohibition in section 114(i) that currently prevents

ratesetting tribunals from considering sound recording performance royalties be

eliminated. Originally designed as a protective measure to benefit songwriters

and publishers, it appears to be having the opposite effect.

• Streamline interim ratesetting and require immediate payment of royalties.

Under the consent decrees, anyone who applies for a license has the right to

perform musical works in a PRO’s repertoire—without paying the PRO any

compensation—pending the completion of negotiations or rate court proceedings

resulting in an interim or final fee. The problem is exacerbated by the substantial

burden and expense of litigating even an interim rate in federal court. The

a license upon request, there should be a streamlined mechanism to set an

interim royalty rate, and that the licensee should have to start paying

immediately.

• Permit opt-out from PROs for interactive streaming. The Office believes that

music publishers should be able to withdraw specific categories of licensing

rights from their authorizations to the PROs. At least for now, the Office believes

that withdrawal of performance rights should be limited to digital rights

equivalent to those that the record labels are free to negotiate outside of sections

112 and 114—essentially, interactive streaming rights for digital services.

Publishers that chose to opt out would be required to provide a list of their

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withdrawn works and other pertinent information to a central source, such as the

general music rights organization (“GMRO”) discussed below. In addition, the

Office believes that songwriters affiliated with that publisher should retain the

option of receiving their writer’s share of royalties directly through their chosen

licensing collective.

• Allow bundled licensing of mechanical and performance rights. Industry

participants support increased bundling of rights—i.e., reproduction,

distribution, and performance rights—in unified licenses to facilitate greater

licensing efficiency. Although bundling of sound recording rights occurs as a

matter of course, various legal restrictions have prevented that same

development on the musical work side. The Office believes that the government

should pursue appropriate changes to the legal framework to encourage bundled

licensing, which could eliminate redundant resources on the part of both

licensors and licensees. This could include allowing the PROs and other entities

to become music rights organizations (“MROs”), which would be authorized to

license both performance and mechanical rights.

Mechanical Licensing and Section 115

Study participants highlighted the serious shortcomings of the 106-year old compulsory

license for “mechanical” reproductions of musical works (e.g., CDs, vinyl records and

downloads) in section 115. On the copyright owner side, parties complained that the

mandatory nature of the license does not permit them to control their works or seek

higher royalties. On the licensee side, parties criticized section 115’s requirement of

song-by-song licensing, a daunting task in a world where online providers seek licenses

for millions of works. In light of these concerns, the Office offers the following

recommendations:

• Permit collective licensing of mechanical rights but with an opt-out right for

interactive streaming and download uses. The Office is sympathetic to music

publishers’ arguments for elimination of the compulsory license in section 115 in

favor of free market negotiations. But in light of the diffuse ownership of

musical works, it seems clear that some sort of collective system would be

necessary even in section 115’s absence. The Office thus believes that, rather than

eliminating section 115 altogether, section 115 should instead become the basis of

a more flexible collective licensing system that will presumptively cover all

mechanical uses except to the extent individual music publishers choose to opt

out. At least initially, the mechanical opt-out right would extend to interactive

streaming rights and downloading activities—uses where sound recording

owners operate in the free market (but not physical goods, which have somewhat

distinct licensing practices). As envisioned by the Office, the collective system

would include MROs (as noted, with the ability to represent both performance

and mechanical rights), a GMRO (that would collect for works or shares not

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represented by an MRO or covered by a direct deal), and individual publishers

that choose to opt out. Licensees could thus achieve end-to-end coverage

through the combination of MROs, the GMRO, and direct licensors.

• Establish blanket licensing for digital uses under section 115. To further facilitate

the rights clearance process and eliminate user concerns about liability to

unknown rightsowners, the Office believes that mechanical licensing, like

performance licensing, should be offered on a blanket basis by those that

administer it. This would mean that a licensee would need only to file a single

notice with an MRO to obtain a repertoire-wide performance and mechanical

license from that licensing entity. The move to a blanket system would allow

marketplace entrants to launch their services—and begin paying royalties—more

quickly.

• CRB ratesetting on an “as-needed” basis. The Office believes that the CRB

should continue to set rates under the section 115 license, though with an

important modification: as is now the case under the PRO consent decrees, rather

than establish rates across the board every five years, the CRB would set rates for

particular uses only on an as-needed basis when an MRO and licensee were

unsuccessful in reaching agreement. Other interested parties (such as other

MROs and other users) could choose to join the relevant proceeding, in which

case those parties would be bound by the CRB-determined rate.

• Ensure copyright owners possess audit rights. Publishers have long complained

about the lack of an audit right under section 115. In that regard, section 115 is

an outlier—such audit rights have been recognized under other statutory

licenses. The Office believes that the mechanical licensing system should be

amended to provide for an express audit right, with the particular logistics to be

implemented through regulation.

• Maintain audiovisual uses in the free market. Record companies proposed

extending compulsory blanket licensing to certain consumer audiovisual

products—such as music videos, album cover videos, and lyric videos—uses that

have traditionally required a synchronization license negotiated in the free

market. The Office is sympathetic to the labels’ concerns, but cannot at this time

recommend that consumer synch uses be incorporated into a government-

supervised licensing regime. The Office does not perceive a market failure that

justifies creation of a new compulsory license, and the market appears to be

responding to licensing needs for consumer audiovisual products.

Section 112 and 114 Licenses

One of the few things that seems to be working reasonably well in our licensing system

is the statutory license regime under sections 112 and 114, which permits qualifying

digital services to engage in noninteractive streaming activities at a CRB-determined (or

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otherwise agreed) rate. Although the differing ratesetting standards for these licenses—

as well as some of the rates established under those standards—have been a source of

controversy, from the record in this study, the licensing framework itself is generally

well regarded. Notwithstanding the comparatively positive reviews of the section 112

and 114 licenses, there are a few relatively minor improvements that the Office believes

should be considered:

• Consider ratesetting distinction between custom and noncustom radio. In 2009,

the Second Circuit ruled that personalized radio services are eligible for the

section 112 and 114 licenses. Although the Office has some reservations about

that interpretation, there appears to be no overwhelming call to remove custom

radio from the statutory regime. Nonetheless, within that regime, it may be

appropriate to distinguish between custom and noncustom radio, as the

substitutional effect of personalized radio on potentially competing interactive

streaming services may be greater than that of services offering a completely

noncustomized experience. While the issue could be addressed legislatively, this

does not appear to be necessary, as the CRB has the discretion to set different rate

tiers today when the record supports such an outcome.

• Allow fine-tuning of technical aspects of the license through the exercise of

regulatory authority. Internet services have criticized a number of the detailed

limitations that section 114 imposes on compulsory licensees. These include the

so-called “sound recording performance complement,” a restriction that limits

the frequency with which songs from the same album or by the same artist may

be played by the service, as well as a prohibition against announcing upcoming

selections. But for the fact that they appear in the statute itself, such details

would seem to be more appropriately the province of regulation. As suggested

more generally below, Congress may wish to commit nuances like these to

administrative oversight by the Copyright Office.

• Consider permitting SoundExchange to process record producer payments.

Record producers—who make valuable creative contributions to sound

recordings—are not among the parties entitled by statute to direct payment by

SoundExchange. In some cases, an artist may provide a letter of direction

requesting SoundExchange to pay the producer’s share of income from the artist

royalties collected by SoundExchange, which SoundExchange will honor. It has

been suggested that this informal practice be recognized through a statutory

amendment. Though it would be beneficial to hear more from artists on this

issue, the Office agrees that in many instances producers are integral creators

and that the proposal therefore merits consideration.

• Allow SoundExchange to terminate noncompliant licensees. Unlike section 115,

sections 112 and 114 do not include a right to terminate a licensee that fails to

account for and pay royalties. The Office does not see a justification for

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continued licensing of a user that is not meeting its obligations, and agrees that

the section 112 and 114 statutory licenses should be amended to include a

termination provision akin to that in section 115.

Public Broadcaster Statutory License

• Create a unified statutory licensing scheme for public broadcasters. Public

broadcasters must engage in a multitude of negotiations and ratesetting

proceedings in different fora to clear rights for their over-the-air and online

activities. Especially in light of the relatively low royalty rates paid by public

broadcasters, the Office suggests that the ratesetting processes applicable to

public broadcasters be consolidated within a unified license structure under

section 118 under the auspices of the CRB, where they would likely be much

more efficiently resolved.

D. Licensing Efficiency and Transparency

The Office believes that accurate, comprehensive, and accessible data, and increased

transparency, are essential to a better functioning music licensing system. Authoritative

data would benefit all participants in the marketplace for sound recordings and musical

works, and facilitate a more efficient system. In addition, it is essential to make reliable

usage and payment information available to rightsholders. To achieve these twin goals,

the Office offers the following recommendations:

• Establish incentives through the statutory licensing scheme for existing market

players to create an authoritative public database. The Copyright Office believes

that any solution to the music data problem should not be built from scratch by

the government but should instead leverage existing industry resources.

Accordingly, the Office recommends that the government establish incentives

through the statutory licensing regime to encourage private actors to coordinate

their efforts and contribute to a publicly accessible and authoritative database,

including by encouraging the adoption and dissemination of universal data

standards. To facilitate this process, the Copyright Office should provide

regulatory oversight regarding standards and goals.

• Establish transparency in direct deals. Throughout the study, a paramount

concern of songwriters and recording artists has been transparency in the

reporting and payment of writer and artist shares of royalties, especially in the

context of direct deals negotiated by publishers and labels outside of the PROs

and SoundExchange, which may involve substantial advances or equity

arrangements. These concerns should be addressed as part of any updated

licensing framework, especially one that allows publishers to opt out of the

statutory licensing system and pursue direct negotiations. In the case of direct

deals for rights covered by an MRO or SoundExchange, the Office recommends

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allowing songwriters and artists to elect to receive their shares of royalties from

the licensee through their chosen licensing entity.

E. An Updated Music Licensing System

To implement the principles and recommendations laid out above, the Copyright Office

is proposing an updated framework for the licensing of musical works. The basic

components of this proposal are as follows:

• MROs. Under the Office’s proposal, except to the extent they chose to opt out of

the blanket statutory system, publishers and songwriters would license their

public performance and mechanical rights through MROs.

o An MRO could be any entity representing the musical works of

publishers and songwriters with a market share in the mechanical and/or

performance market above a certain minimum threshold, for example,

5%. Existing rights organizations, such as ASCAP, BMI, HFA and others,

could thus qualify as MROs.

o Each MRO would enjoy an antitrust exemption to negotiate performance

and mechanical licenses collectively on behalf of its members—as would

licensee groups negotiating with the MROs—with the CRB available to

establish a rate in case of a dispute. But MROs could not coordinate with

one another and would be subject to at least routine antitrust oversight.

o Each MRO would be required to supply a complete list of the publishers,

works, percentage shares and rights it represented, as well as the MRO’s

licensing contact information, to the GMRO, and would be obligated to

keep that information current. MROs would not have to share all of their

data for purposes of the public database. For example, there would be no

need for an MRO to provide contact information for its members (other

than those that opted out) since the MRO would be responsible for

distributing royalties under the licenses it issued.

o MROs would also be responsible for notifying the GMRO of any

members that had exercised opt-out rights by providing the relevant opt-

out information, including where a direct license might be sought, so

potential licensees would know where to go for license authority.

• GMRO. Even though most licensing activity would be carried out by the MROs

and directly licensing publishers, the hub of the new licensing structure would

be the “general” MRO or GMRO. The GMRO would have certain important

responsibilities:

o First, the GMRO would be responsible for maintaining a publicly

accessible database of musical works represented by each MRO, which

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would incorporate data supplied by the MROs and other authoritative

sources. The GMRO would actively gather missing data, reconcile

conflicting data, and correct flawed data, and would also provide a

process to handle competing ownership claims. In addition to musical

work data, the GMRO would also incorporate sound recording data—

presumably from SoundExchange—into the public database, and be

responsible for developing additional data that matched sound

recordings with musical works to facilitate more efficient licensing.

o Second, the GMRO would also serve as the default licensing and

collection agent for musical works (or shares of works) that licensees

were unable to associate with an MRO or opt-out publisher. Services

with usage-based payment obligations would transmit records of use for

unmatched works, along with associated payments and an administrative

fee, to the GMRO. The GMRO would then attempt to identify the MRO

or individual copyright owners and, if successful, pay the royalties out. If

unsuccessful, the GMRO would add the usage record to a public

unclaimed royalties list and hold the funds for some period of time—e.g.,

three years—to see if a claimant came forward. As is the case with

SoundExchange, after that period, the GMRO could use any remaining

unclaimed funds to help offset the costs of its operations.

• GMRO funding and resources. The Copyright Office believes that both

groups will benefit from its activities. Under the Office’s proposal, every MRO,

as well as SoundExchange, would be required to contribute key elements of data

to create and maintain a centralized music database. MROs would be

responsible for allocating and distributing the vast majority of royalties. In

exchange for these contributions on the part of copyright owners, the Office

believes that most direct financial support for the GMRO should come from fees

charged to users of the section 112, 114 and 115 licenses. Thus, although

licensees would be paying royalties to MROs and individual publishers

directly—and SoundExchange as well—they would have a separate obligation to

pay a licensing surcharge to the GMRO. The surcharge to be paid by statutory

licensees could be determined by the CRB based on the GMRO’s costs (and

without consideration of royalty rates) through a separate administrative

process. The surcharge would be offset by administrative fees and other sources

of income for the GMRO, including any “black box” funds unclaimed by

• Copyright Royalty Board improvements. Under the Copyright Office’s proposal,

ratesetting by the CRB would shift from a five-year cycle to a system under

which the CRB would step in only as necessary when an MRO or

SoundExchange and a licensee could not agree on a rate. The new model would

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create opportunities for combined ratesetting proceedings for noninteractive

services (e.g., internet, terrestrial, and satellite radio) encompassing both sound

recordings and musical works. The Office recommends other procedural

adjustments to the CRB as well—including adjustments to the statutorily

prescribed litigation process and its settlement procedures. It would also be

worthwhile to remove unnecessary procedural details in the statute that are

better left to regulation by the CRB.

• Regulatory implementation. The Copyright Office recommends that if Congress

acts to restructure the music licensing system, it would be most productive for

the legislation to set out the essential elements of the updated system but leave

the details to be implemented through regulation by the Copyright Office and, in

ratesetting matters, the CRB. Such a construct would likely be more realistic to

enact than a highly detailed statutory prescription—especially in the case of

music licensing, where the particulars can be overwhelming.

• Further evaluation. Should Congress choose to embark upon a series of changes

to the licensing system as described above, the Office recommends that the new

system be evaluated by the Copyright Office after it has been in operation for a

period of several years. Assuming the new licensing framework includes an opt-

out mechanism, the efficacy of that process would be of particular interest.

Congress could choose to narrow or expand opt-out rights as appropriate.

U.S. Copyright Office Copyright and the Music Marketplace

I. Introduction

The United States has the most innovative and influential music culture in the world,

but our system for enabling the paid use of music—and ensuring compensation for its

creators—lags far behind. The structures that evolved in the previous century to

facilitate the lawful exploitation of musical works and sound recordings, while perhaps

adequate for the era of discs and tapes, are under significant stress. From a copyright

perspective, we are trying to deliver bits and bytes through a Victrola.

It is a testament to the irresistible power of music that industry and market participants

have done their best to adapt the old methods, including pre-digital government

policies, to embrace current technologies and consumer expectations. But the costs of

failing to update our outmoded licensing methods are escalating. Even when

distributors are perfectly willing to pay licensing fees, they may find it difficult to

identify the owners of the music they use. Those seeking to launch new delivery

platforms are constrained—and sometimes even defeated—by the complexities and

expense of convoluted clearance processes. Perhaps most concerning is that many

deeply talented songwriters and developing artists now question whether a career in

music is realistic under the current regime.

As might be expected, many of the issues raised by the participants in this study of the

music marketplace revolved around government mandates, in particular the role of the

antitrust consent decrees governing the licensing of performance rights in musical works

by performing rights organizations (“PROs”), the section 115 “mechanical” license for

the reproduction and distribution of musical works, and the section 112 and 114 licenses

for the digital performance of sound recordings.

There is a profound conviction on the part of music publishers and songwriters that

government regulation of the rates for the reproduction, distribution, and public

performance of musical works has significantly depressed the rates that would

otherwise be paid for those uses in an unrestricted marketplace. The standards

employed for the section 115 and PRO ratesetting proceedings—section 801(b)(1)’s four-

factor test for mechanical uses and the “reasonable fee” standard of the consent decrees

(which cannot take into account sound recording performance rates)—are perceived as

producing below-market rates, especially when compared to rates paid for analogous

uses of sound recordings. On the other side of the fence, licensees urge that government

oversight is essential to forestall alleged monopolistic practices on the part of the PROs

and large music publishers.

The PROs are viewed as both as a blessing and a threat. Licensees laud the efficiencies

of the blanket licenses they offer while at the same time bemoaning the societies’

perceived bargaining position as a result of that very breadth. Songwriters, for their

part, are deeply concerned about the potential loss of transparency in reporting and

U.S. Copyright Office Copyright and the Music Marketplace

payment should major publishers opt to withdraw from the PROs and license

performance rights directly—as some publishers have suggested they may do in a quest

for higher rates than those set by the rate courts under the consent decrees.

With respect to the section 112 and 114 licenses for the performance of sound recordings,

the debate has centered on the disparate rate standards for differing classes of digital

users—the more malleable 801(b)(1) standard that is applied to satellite radio versus the

willing buyer/willing seller standard for competing online radio services—as well as the

overall burden and expense of the CRB ratesetting process. Internet radio providers

complain that the CRB process has yielded rates that have required them to seek

congressional intervention.

There are differing opinions as to how to handle pre-1972 sound recordings, which are

currently outside of the ambit of federal copyright law but protected in varying degrees

under differing state regimes. Some concur with the Copyright Office’s 2011

recommendation that pre-1972 recordings should be brought fully within the scope of

federal copyright protection, but others argue for a more limited fix, or no fix at all.

Meanwhile, since the inception of the study, three courts have held that the public

performance of pre-1972 recordings is subject to protection under applicable state law,

further complicating the licensing landscape.

And last but not least is the longstanding issue of whether terrestrial radio broadcasters

should continue to be exempted under the Copyright Act from paying royalties for the

performances of sound recordings that drive their multibillion dollar industry—a debate

that has been sharpened as online radio services seek to compete with their terrestrial

counterparts.

At the same time, stakeholders widely acknowledge that there is a need for universal

data standards to facilitate the identification of musical works and sound recordings,

and the licensing process generally. In particular, there is broad recognition of the

necessity for reliable data to match sound recordings to the musical works they embody.

But there is discord as to how to address these problems. Some market participants are

willing to share the data they accumulate with the world, while others are reluctant to

do so.

Despite the wide range of viewpoints expressed in the course of this study, the Office’s

review of the issues has confirmed one overarching point: that our music licensing

system is in need of repair. The question, then, is how to fix it, in light of the often

conflicting objectives of longtime industry participants with vested interests in

traditional business models and infrastructure; digital distributors that do not produce

or own music and for which music represents merely a cost of doing business;

consumers whose appetite for music through varied platforms and devices only

continues to grow; and individual creators whose very livelihoods are at stake. This

report seeks to chart a path forward.

U.S. Copyright Office Copyright and the Music Marketplace

Given their complexity and significance, many of the issues addressed below would

themselves be worthy of a separate report. But instead of focusing on each particular

licensing process as an isolated problem, the goal of this study is to illuminate the

system as a whole—including interrelated issues and concerns—to see if there may be a

balanced set of changes that could provide benefits to all. Rather than present a detailed

legislative proposal, then, with all of the intricacy that would entail, the report instead

suggests some key principles and modifications that the Copyright Office believes

would be useful in framing a better system.

The ideas described below are thus intended to serve as a useful framework for

continuing discussion of how we might reinvent our music licensing system, rather than

a fully developed answer. As Congress considers a range of potential amendments to

our copyright laws, the Office hopes that interested parties will take advantage of this

unique opportunity to improve our music licensing process for the digital age.

A. Study History

In April 2013, Congress, led by the House Judiciary Committee, announced a

comprehensive review of the nation’s copyright laws to evaluate “whether the laws are

still working in the digital age.”

The myriad issues affecting the music industry have

been a significant focus of that review.

The Office initiated this study to illuminate critical concerns of the music marketplace

and to identify potential avenues for change. On March 17, 2014, the Office published

an initial Notice of Inquiry in the Federal Register (the “First Notice”) requesting public

comment on twenty-four subjects affecting the existing music licensing environment.

Press Release, H. Comm. on the Judiciary, Chairman Goodlatte Announces Comprehensive

Review of Copyright Laws (Apr. 24, 2013), http://judiciary.house.gov/index.cfm/2013/4/

chairmangoodlatteannouncescomprehensivereviewofcopyrightlaw.

Of the seventeen hearings that have been held so far as part of the congressional review, two

were specifically dedicated to music licensing. Music Licensing Under Title 17 (Part I & II): Hearing

Before the Subcomm. on Courts, Intell. Prop., and the Internet of the H. Comm. on the Judiciary, 113th

Cong. (2014) (“Music Licensing Hearings”). Music industry representatives also participated in a

number of other hearings. See, e.g., Moral Rights, Termination Rights, Resale Royalty, and Copyright

Term: Hearing Before the Subcomm. on Courts, Intell. Prop. and the Internet of the H. Comm. on the

Judiciary, 113th Cong. (2014); Section 512 of Title 17: Hearing Before the Subcomm. on Courts, Intell.

Prop. and the Internet of the H. Comm. on the Judiciary, 113th Cong. (2014); The Scope of Fair Use:

Hearing Before the Subcomm. on Courts, Intell. Prop. and the Internet of the H. Comm. on the Judiciary,

113th Cong. (2014).

Music Licensing Study: Notice and Request for Public Comment, 78 Fed. Reg. 14,739 (Mar. 17,

2014). This Notice of Inquiry, along with the Office’s second Notice of Inquiry and Notice of

Public Roundtables, are attached as Appendix A. A list of the parties who responded to the

U.S. Copyright Office Copyright and the Music Marketplace

The Office received 84 written comments in response to its notice, spanning a broad

spectrum of interested parties, including music industry associations, service providers

and technology companies, legal scholars, public interest groups, and individual artists

and creators.

In June 2014, the Office conducted three two-day public roundtables in Nashville, Los

Angeles, and New York City.

The roundtables provided participants with the

opportunity to share their views on the topics identified in the First Notice and other

issues pertaining to our music licensing system and how it might be improved.

In addition, on July 23, 2014, the Office published a second Notice of Inquiry (“Second

Notice”) requesting further comments on a number of significant issues raised in earlier

comments and discussed at the roundtables.

The Office received 51 substantive written

comments in response to the Second Notice, again representing a wide variety of

viewpoints, on these subjects.

B. Licensing and Ratesetting Charts

The Office has prepared a series of charts to illustrate our current systems for the

licensing of musical works and sound recordings and the ratesetting procedures under

the several statutory licenses, as well as how those processes would be altered as a result

of the modifications proposed by the Office. These appear at the back of the study in

Appendix D. The Office hopes that these charts will prove helpful to readers as they

make their way through this report.

Office’s Notices of Inquiry, along with a list of participants in the Office’s public roundtables, is

attached as Appendix B.

The comments received in response to the First Notice are available on the Copyright Office

website at http://copyright.gov/docs/musiclicensingstudy/comments/Docket2014_3/index.html.

References to these comments in this document are by party name (abbreviated where

appropriate) followed by “First Notice Comments” (e.g., “DiMA First Notice Comments”).

See Music Licensing Study, 79 Fed. Reg. 25,626 (May 5, 2014). Transcripts of the proceedings at

each of the three roundtables are available on the Copyright Office website at http://copyright.

gov/docs/musiclicensingstudy/transcripts/.

Music Licensing Study: Second Request for Comments, 79 Fed. Reg. 42,833 (July 23, 2014).

The comments received in response to the Second Notice are available on the Copyright Office

website at http://copyright.gov/docs/musiclicensingstudy/comments/Docket2014_3/

extension_comments/. References to these comments in this document are by party name

(abbreviated where appropriate) followed by “Second Notice Comments” (e.g., “RIAA Second

Notice Comments”).

U.S. Copyright Office Copyright and the Music Marketplace

II. Music Licensing Landscape

Our rules for music licensing are complex and daunting even for those familiar with the

terrain. To begin with, our licensing structures must address two different species of

Each of these separate copyrights, in turn, itself represents several different exclusive

rights that may be separately licensed, including the rights of reproduction, distribution,

public performance, as well as the right to synchronize works with visual content.

The situation is further complicated by the fact that many licensing transactions are

regulated by the government. But the government rules have not been implemented in

a unified or systematic fashion. Instead, they represent a series of statutory and judicial

mandates that came into effect at various points during the last century to address

particular concerns of the day. And still more challenging is that not all licensing is

conducted according to these government-mandated protocols. Some licensing is

permitted to transpire in the private marketplace without government oversight. In

addition, there are voluntary workarounds to the government processes—more efficient

alternatives that have grown up like trees around the government rules and are now

deeply rooted.

This section provides an introduction to our music licensing system and those who

participate in it.

Before turning to the challenges we face and how they might be

addressed, it is important to understand where we are and how we got here.

A. Copyright Overview

1. Brief History of Copyright Protection for Music

Congress passed the first federal copyright act in 1790.

That act did not provide express

protection for musical compositions (or “musical works” in the parlance of the current

Then, in 1831,

Congress amended the law to provide expressly that musical works were subject to

federal copyright protection.

As noted above, the Office has included charts in Appendix D of this report that provide a

bird’s-eye view of the licensing and ratesetting systems for music. The charts are intended as

high-level references and do not capture every nuance or quirk of the system. A list of

abbreviations used in the report is included as Appendix C.

Act of May 31, 1790, ch. 15, 1 Stat. 124.

See Clayton v. Stone, 5 F. Cas. 999, 1000 (C.C.S.D.N.Y. 1829) (No. 2872); I. Trotter Hardy,

OVA L. REV. 659, 664 (1999).

Act of Feb. 3, 1831, ch. 16, 4 Stat. 436.

U.S. Copyright Office Copyright and the Music Marketplace

The 1831 amendment, however, provided owners of musical works with only the

exclusive right to reproduce and distribute their compositions, i.e., to print and sell sheet

music, because, “[a]t the time, performances were considered the vehicle by which to

spur the sale of sheet music.”

In 1897, Congress expanded the rights of music owners

to include the exclusive right to publicly perform their works.

With the 1909 Copyright

Act, federal copyright protection for musical works was further extended by adding an

exclusive right to make “mechanical” reproductions of songs in “phonorecords”—in

those days, piano rolls, but in the modern era, vinyl records and CDs. At the same time,

Congress limited the new phonorecord right by enacting a compulsory license for this

use, a topic that is addressed in greater depth below.

And in 1995, Congress confirmed

that an owner’s exclusive right to reproduce and distribute phonorecords of musical

works extends to digital phonorecord deliveries (“DPDs”)—that is, the transmission of

digital files embodying musical works.

Over time, new technologies changed the way people consumed music, from buying

and playing sheet music, to enjoying player pianos, to listening to sound recordings on a

phonograph or stereo system.

But it was not until 1971, several decades after the

widespread introduction of phonorecords, that Congress recognized artists’ sound

recordings as a distinct class of copyrighted works that were themselves deserving of

federal copyright protection.

This federal protection, however, was limited to sound

recordings fixed on or after February 15, 1972, and, until more recently, protected only

the exclusive rights of reproduction, distribution, and preparation of derivative works.

No exclusive right of public performance was granted.

Then, in 1995, Congress

granted sound recording owners a limited public performance right for digital audio

See Maria A. Pallante, ASCAP at 100, 61 J. COPYRIGHT SOC’Y 545, 545-46 (2014).

Act of Mar. 3, 1897, ch. 392, 29 Stat. 694; see also Zvi S. Rosen, The Twilight of the Opera Pirates: A

Prehistory of the Exclusive Right of Public Performance for Musical Compositions, 24 C

ARDOZO ARTS &

ENT. L.J. 1157, 1158-59 (2007).

This report uses both the term “compulsory” and the term “statutory” when describing the

section 112, 114, and 115 licenses.

Digital Performance Right in Sound Recordings Act of 1995 (“DPRSRA”), Pub. L. No. 104-39,

§ 4, 109 Stat. 336, 344-48; see also 17 U.S.C. § 115(c)(3)(A).

See U.S. COPYRIGHT OFFICE, FEDERAL COPYRIGHT PROTECTION FOR PRE-1972 SOUND RECORDINGS

7, 11 (2011) (“PRE-1972 SOUND RECORDINGS REPORT”); Michael Erlinger, Jr., An Analog Solution in a

Digital World: Providing Federal Copyright Protection for Pre-1972 Sound Recordings, 16 UCLA

ENT. L.

REV. 45, 57-58 (2009).

Pub. L. No. 92-140, 85 Stat. 391 (1971) (“Sound Recording Act of 1971”); see generally PRE-1972

SOUND RECORDINGS REPORT at 7-12.

See PRE-1972 SOUND RECORDINGS REPORT at 12-14.

U.S. Copyright Office Copyright and the Music Marketplace

transmissions—though, as discussed below, that right was made subject to compulsory

licensing under sections 112 and 114 of the Copyright Act.

2. Musical Works Versus Sound Recordings

As the above history indicates, a musical recording encompasses two distinct works of

authorship: the musical work, which is the underlying composition created by the

songwriter or composer along with any accompanying lyrics, and the sound recording,

which is the particular performance of the musical work that has been fixed in a

recording medium such as a CD or digital file. Because of this overlap, musical works

and sound recordings are frequently confused. It is important to keep in mind,

however, that these are separately copyrightable works.

A musical work can be in the form of sheet music, i.e., notes and lyrics written on a page,

or embodied in a phonorecord, i.e., in a recording of the song.

A sound recording

comprises the fixed sounds that make up the recording. The musical work and sound

recording are separately protected, and can be separately owned, under copyright law.

3. Key Players in the Music Marketplace

Musical works and sound recordings can be—and often are—created, owned, and

managed by different entities.

a. Songwriters

The authors of a musical work are composers, lyricists and/or songwriters.

songwriter may contribute music, lyrics, or both.

DPRSRA §§ 2, 3. In 1998, as part of the Digital Millennium Copyright Act (“DMCA”), Congress

extended the section 114 compulsory license to include webcasting and amended section 112 of

the Act to cover the server copies necessary for digital transmissions. Pub. L. No. 105-304, §§ 402,

405, 112 Stat. 2860, 2888-02 (1998). The digital performance right is also subject to a number of

exceptions, including for transmissions to or within a business for use in the ordinary course of

its business, for nonsubscription broadcast transmissions, and for certain geographically limited

retransmissions of nonsubscription broadcast transmissions. 17 U.S.C. § 114(d)(1)(A), (B), (C)(ii),

(C)(iv).

The Copyright Act sometimes draws a distinction between “dramatic” musical works—that is,

musical works that are part of a dramatic show such as an opera, ballet, or musical—and

“nondramatic” musical works. For example, the compulsory license under section 115 for the

making and distributing of phonorecords applies only to nondramatic works. See 17 U.S.C.

§ 115. In practice, however, the distinction drawn in section 115 does not appear especially

consequential except when a licensee is seeking to use the work in the context of the dramatic

production; for instance, a show tune that is recorded for release as an individual song is

understood to be licensable under section 115.

For ease of reference, this report will collectively refer to these creators of musical works as

“songwriters.”

U.S. Copyright Office Copyright and the Music Marketplace

The Songwriters Guild of America (“SGA”) and Nashville Songwriters Association

International (“NSAI”) are well-known trade organizations that represent the general

interests of songwriters. Another group, the Society of Composers and Lyricists

(“SCL”), represents the interests of songwriters working specifically in the motion

picture and television industries.

b. Music Publishers

Songwriters often enter into publishing agreements with music publishers. Under such

an arrangement, the publisher may pay an advance to the songwriter against future

royalty collections to help finance the songwriter’s writing efforts. In addition, the

publisher promotes and licenses the songwriter’s works and collects royalties on the

songwriter’s behalf. In exchange, the songwriter assigns a portion of the copyright in

the compositions he or she writes during the deal term to the publisher—traditionally

50%, but sometimes less—and the publisher is compensated by receiving a royalty

share.

In some cases, a musical work has a single songwriter and a single publisher,

and dividing royalties is relatively straightforward. But many songs have multiple

songwriters, each with his or her own publisher and publishing deal. In such cases, it

may be challenging to determine royalty shares—or “splits”—among the various

parties.

The three “major” music publishers—Sony/ATV Music Publishing (“Sony/ATV”),

Warner/Chappell Music, and Universal Music Publishing Group (“UMPG”)—together

control over 60% of the music publishing market.

There are also a handful of mid-

sized music publishers, such as Kobalt Music Group and BMG Chrysalis, and thousands

of smaller music publishers, among them self-published songwriters. The National

Music Publishers Association (“NMPA”) and the Association of Independent Music

Publishers (“AIMP”) are two major trade organizations representing the interests of

music publishers.

Another group, Interested Parties Advancing Copyright (“IPAC”),

was established in Nashville in 2014 and includes independent publishers,

administrators, business managers, and entertainment attorneys.

DONALD S. PASSMAN, ALL YOU NEED TO KNOW ABOUT THE MUSIC BUSINESS 220 (8th ed. 2013)

(“P

ASSMAN”).

See generally AL KOHN & BOB KOHN, KOHN ON MUSIC LICENSING 329-44 (4th ed. 2010)

(“K

OHN”).

See Ed Christman, First-Quarter Music Publishing Rankings: SONGS Surges Again, BILLBOARD

(May 12, 2014), http://www.billboard.com/biz/articles/news/publishing/6084783/first-quarter-

music-publishing-rankings-songs-surges-again.

NMPA & HFA First Notice Comments at 1.

Nate Rau, New Nashville Group to Push for Copyright Reform, THE TENNESSEAN (May 25, 2014),

http://www.tennessean.com/story/money/industries/music/2014/05/25/nashville-copyright-

group-emerges/9513731.

U.S. Copyright Office Copyright and the Music Marketplace

c. Performing Rights Organizations (“PROs”)

Songwriters and publishers almost always associate themselves with a PRO, which is

responsible for licensing their public performance rights. The two largest PROs—the

American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast

Music, Inc. (“BMI”)—together represent more than 90% of the songs available for

licensing in the United States.

ASCAP and BMI operate on a not-for-profit basis and,

as discussed below, are subject to antitrust consent decrees that impose constraints on

their membership and licensing practices. In ASCAP’s case, this includes an express

prohibition on licensing any rights other than public performance rights.

In addition to these larger PROs, there are two considerably smaller, for-profit PROs

that license performance rights outside of direct government oversight. Nashville-based

SESAC, Inc. was founded in the 1930s.

SESAC’s market share of the performance

rights market is unclear, but appears to be at least 5% and possibly higher.

Global

Music Rights (“GMR”), a newcomer to the scene established in 2013, handles

performance rights licensing for a select group of songwriters.

While ASCAP and

BMI’s consent decrees prohibit them from excluding potential members who are able to

meet fairly minimal criteria,

SESAC and GMR have no such restriction and add new

members by invitation only.

See Ben Sisario, Pandora Suit May Upend Century-Old Royalty Plan, N.Y. TIMES (Feb. 13, 2014),

http://www.nytimes.com/2014/02/14/business/media/pandora-suit-may-upend-century-old-

royalty-plan.html.

About Us, SESAC, http://www.sesac.com/about/about.aspx (last visited Jan. 26, 2015).

See Chris Versace, The Future of Streaming Music Rests With Congress, FOX BUSINESS (June 23,

2014), http://www.foxbusiness.com/technology/2014/06/23/future-streaming-music-rests-with-

congress (SESAC “controls approximately 5% of the market”); In re Pandora Media, Inc. (“Pandora

Ratesetting”), 6 F. Supp. 3d 317, 351 & n.55 (S.D.N.Y. 2014) (noting that during license negotiations

SESAC had used a 10% figure to describe its market share, but that the actual figure “is

impossible to know with certainty”).

See GMR, http://www.globalmusicrights.com (last visited Jan. 30, 2015); see also Ed Christman,

Gail Mitchell, and Andrew Hampp, Pharrell to Leave ASCAP for Irving and Grimmet’s Global Music

Rights, B

ILLBOARD (July 25, 2014), www.billboard.com/articles/business/6188942/pharrell-to-

leave-ascap-for-irving-and-grimmets-global-music-rights; Ben Sisario, New Venture Seeks Higher

Royalties for Songwriters, N.Y.

TIMES (Oct. 29, 2014), http://www.nytimes.com/2014/10/30/

business/media/new-venture-seeks-higher-royalties-for-songwriters.html.

ASCAP must admit anyone who has published a single musical work or is actively engaged in

the music publishing business; BMI similarly accepts anyone who has written at least one

musical work that is likely to be “performed soon.” See United States v. ASCAP, No. 41-1395, 2001

WL 1589999, 2001-02 Trade Cas. (CCH) ¶ 73,474, § XI (S.D.N.Y. June 11, 2001) (“ASCAP Consent

Decree”); United States v. BMI, No. 64-civ-3787, 1966 U.S. Dist. LEXIS 10449, 1966 Trade Cas.

(CCH) ¶ 71,941, § V (S.D.N.Y. 1966), as amended by, 1994 U.S. Dist. LEXIS 21476, 1996-1 Trade Cas.

U.S. Copyright Office Copyright and the Music Marketplace

d. Mechanical Rights Administrators

As examined in more depth below, the right to make and distribute phonorecords of

musical works—i.e., the mechanical right—is subject to compulsory licensing under

section 115 of the Act. But in practice, because of the administrative burdens imposed

by the license—including service of a notice on the copyright owner and monthly

reporting of royalties on a song-by-song basis—mechanical licensing is often handled

via third-party administrators.

The oldest and largest such organization is the Harry

Fox Agency, Inc. (“HFA”), which was established by the NMPA in 1927 and today

represents over 48,000 publishers in licensing and collection activities.

Mechanical

licenses issued by HFA incorporate the terms of section 115, but with certain variations

from the statutory provisions.

Another entity that assists with mechanical licensing is

Music Reports, Inc. (“MRI”), which prepares and serves statutory notices on behalf of its

clients and administers monthly royalty payments in keeping with the requirements of

section 115.

Mechanical licenses are also issued and administered directly by music

publishers in many instances.

e. Recording Artists and Producers

The creators of sound recordings typically include recording artists—that is, the singer

or members of the band who are featured in the recording. The recording process is

often managed by a producer, who supervises and contributes overall artistic vision to

the project. Other “nonfeatured” musicians and vocalists may add their talents to the

recording as well. Except with respect to digital performance rights falling under the

section 114 statutory license,

featured artists are typically paid under their record

company contracts, while nonfeatured performers are usually compensated at an hourly

(CCH) ¶ 71,378 (S.D.N.Y. 1994). The most readable version of the current BMI consent decree is

the version provided on the Department of Justice’s (“DOJ’s”) website, and is the version cited

throughout this report. See United States v. BMI, No. 64-civ-3787 (S.D.N.Y. Nov. 18, 1994) (final

judgment) (“BMI Consent Decree”), available at http://www.justice.gov/atr/cases/

f307400/307413.pdf.

Radio Music License Comm., Inc. v. SESAC, 29 F. Supp. 3d 487, 498 (E.D. Pa. 2014); Pandora

Ratesetting, 6 F. Supp. 3d at 351; GMR, http://www.globalmusicrights.com (last visited Jan. 30,

2015).

KOHN at 771-72, 808-10.

HARRY FOX AGENCY, http://www.harryfox.com (last visited Jan. 9, 2015).

KOHN at 803-806. For example, HFA licenses allow licensees to account for royalties on a

quarterly basis, as opposed to the monthly reporting required under section 115. Become an HFA

Licensee, H

ARRY FOX AGENCY, http://www.harryfox.com/license_music/become_hfa_

licensee.html (last visited Jan. 25, 2015).

See MRI First Notice Comments at 1-3.

See 17 U.S.C. § 114(g) (dividing statutory royalty proceeds among these groups).

U.S. Copyright Office Copyright and the Music Marketplace

rate based on their work on specific projects.

Producers may be paid a flat fee for their

efforts and/or may be paid a royalty share by the featured artist out of the artist’s

earnings.

The organization SoundExchange collects and pays royalties owed to featured and

nonfeatured artists (as well as to record companies) for noninteractive streaming uses

under the section 112 and 114 statutory licenses, and advocates for their interests in

relation to those uses.

The Recording Academy, also known as the National Academy

of Recording Arts and Sciences (“NARAS”)—the organization responsible for the

GRAMMY awards—represents musicians, producers, recording engineers, and other

recording professionals on a wide range of industry matters.

The Future of Music

Coalition (“FMC”) advocates on behalf of individual music creators.

The American

Federation of Musicians of the United States and Canada (“AFM”) and Screen Actors

Guild-American Federation of Television and Radio Artists (“SAG-AFTRA”) are labor

unions that represent the interests of nonfeatured musicians and vocalists.

f. Record Companies

Most commercially successful sound recordings are the product of contractual

relationships between recording artists and record labels.

Though levels of

responsibility vary according to the specifics of individual recording contracts, a record

label’s usual role is to finance the production of sound recordings, promote the

recordings (and sometimes the recording artists themselves), and arrange to distribute

the recordings via physical and digital distribution channels.

Except in the case of

noninteractive streaming uses that qualify for the section 112 and 114 licenses, record

labels typically handle the licensing for the sound recordings they own.

See Sound Recordings at a Glance, SAG-AFTRA, http://www.sagaftra.org/files/sag/

documents/soundrecordings_ataglance_2014.pdf (last visited Jan. 25, 2015).

See Dan Daley, Points of Survival: Producers Adapt to a New Economic Landscape in the Music

Industry, G

RAMMY.COM (Sept. 1, 2010), http://www.grammy.com/news/points-of-survival;

NARAS First Notice Comments at 5-6.

Unlike royalties paid under section 114, royalties under the 112 license are not distributed

directly to featured and nonfeatured artists, but instead are paid to the sound recording owner.

See 17 U.S.C. § 114(g)(2); see also 17 U.S.C. § 112(e).

NARAS First Notice Comments at 1.

About Us, FUTURE OF MUSIC COALITION, https://www.futureofmusic.org/about (last visited Jan.

25, 2015).

SAG-AFTRA & AFM First Notice Comments at 1-2.

KOHN at 1454.

PASSMAN at 63. Labels also secure mechanical rights to musical works embodied in sound

recordings.

U.S. Copyright Office Copyright and the Music Marketplace

In modern industry parlance, there are two classes of record labels: “major” labels and

“independent” labels.

There are currently three major record labels: Universal Music

Group (“UMG”), Sony Music Entertainment, Inc. (“SME”), and Warner Music Group

(“WMG”).

Independent labels are entities that are not wholly owned by one of the

three major record labels. In the United States, there are currently hundreds of

independent labels, which account for roughly 35% of domestic recording industry

revenues.

One notable feature of the modern music marketplace is the extent of common corporate

ownership of major record labels and major music publishers: UMPG is owned by

UMG (which in turn is owned by French media conglomerate Vivendi); the Sony

Corporation owns SME and half of Sony/ATV; and Warner/Chappell Music is a division

of WMG.

The Recording Industry Association of America (“RIAA”) and the American Association

of Independent Music (“A2IM”) are the two primary trade organizations representing

the interests of record labels. The International Federation of the Phonographic Industry

(“IFPI”) represents record labels globally.

As noted above, SoundExchange—originally

a division of the RIAA and later spun off as an independent entity

—represents the

interests of the record labels in relation to the section 112 and 114 licenses.

g. Music Providers

There are a number of organizations that represent the interests of the thousands of

music broadcasters and distributors—including radio and television stations, digital

music companies, and physical and online record stores.

A2IM, the U.S. trade association that represents the interests of independent record labels,

objects to the term “major label.” According to A2IM, independent labels, collectively, represent

34.6% of the U.S. music market, making them “the largest music label industry segment.” A2IM

First Notice Comments at 1, 3.

The three major labels all own and operate smaller labels. For example, Atlantic Records and

Rhino Entertainment Company are both owned by WMG.

A2IM First Notice Comments at 1, 3.

Sebastian Torrelio, Jody Gerson Appointed Chairman and CEO of Universal Music Publishing Group,

ARIETY (Aug. 1, 2014), http://variety.com/2014/biz/news/jody-gerson-appointed-chairman-and-

ceo-of-universal-music-publishing-group-1201273829; Profile: Sony Corp, R

EUTERS, http://www.

reuters.com/finance/stocks/companyProfile?symbol=SNE.N (last visited Jan. 25, 2015); About Us,

ARNER/CHAPPELL MUSIC, http://www.warnerchappell.com/about (last visited Jan. 25, 2015).

IFPI, http://www.ifpi.org (last visited Jan. 15, 2015).

Glenn Peoples, SoundExchange Distributes Record $153 Million in Q3, Celebrates 10-Year

Anniversary, B

ILLBOARD (Oct. 4, 2014), http://www.billboard.com/biz/articles/news/5748060/

soundexchange-distributes-record-153-million-in-q3-celebrates-10-year.

U.S. Copyright Office Copyright and the Music Marketplace

The National Association of Broadcasters (“NAB”) is the main trade organization

representing terrestrial (AM/FM) radio and television broadcasters.

Broadcasters have

also established a number of “music license committees” that collectively negotiate

licensing arrangements with the PROs. These include the Radio Music License

Committee (“RMLC”),

the Television Music License Committee (“TMLC”),

the

National Religious Broadcasters Music License Committee (“NRBMLC”) and the

National Religious Broadcasters Noncommercial Music License Committee

(“NRBNMLC”).

National Public Radio (“NPR”) operates and advocates on behalf of

public radio stations.

The Digital Media Association (“DiMA”) is a national trade organization that advocates

for digital music and media companies, such as Pandora, Rhapsody, Apple, and

YouTube.

CTIA–The Wireless Association (“CTIA”)

represents the wireless communications

industry, and the Computer and Communications Industry Association (“CCIA”)

represents a broad range of technology companies.

Music Business Association (“Music Biz”), formerly the National Association of

Recording Merchandisers, includes many physical and digital distributors of music in its

membership.

h. Consumers

Last but not least, there are music fans. As digital technologies continue to evolve,

individual users interact with music more and more in ways that implicate copyright—

they copy it, share it, and remix it with other content.

NAB First Notice Comments at 1.

RMLC First Notice Comments at 1.

TMLC First Notice Comments at 1.

NRBMLC First Notice Comments at 2-3; NRBNMLC First Notice Comments at 1-2. The

National Cable & Telecommunications Association (“NCTA”), which represents cable operators,

has its own music license committee to negotiate PRO licenses for public performances of music

in cable operators’ local programming. See NCTA, Comments Submitted in Response to the

DOJ’s Antitrust Consent Decree Review at 1 (Aug. 6, 2014), available at http://www.justice.gov/atr/

cases/ascapbmi/comments/307982.pdf.

DiMA First Notice Comments at 1.

CTIA First Notice Comments at 2-4.

CCIA Second Notice Comments at 1.

About, MUSIC BUSINESS ASSOCIATION, http://musicbiz.org/about (last visited Jan. 25, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

A number of groups represent the interests of music consumers in policy matters,

including Public Knowledge and the Consumer Federation of America (“CFA”).

B. Licensing Musical Works

1. Exclusive Rights in Musical Works

The owner of a musical work possesses exclusive rights under the Copyright Act,

including the right to authorize others to exploit these exclusive rights: the right to

make and distribute copies (e.g., sheet music) or phonorecords (e.g., CDs and digital

audio files) of the work (the so-called “mechanical” right);

the right to create derivative

works (e.g., a new work based on an existing composition);

the right to display the

work publicly (e.g., by posting lyrics on a website);

and the right to perform the work

publicly (e.g., in a live venue or broadcast).

Although it is not specified in section 106

of the Act, as a matter of business practice, the music industry also recognizes the right

to synchronize musical works to visual content (e.g., in a music video). The

synchronization (or “synch” right) is a species of the reproduction right and may also

implicate the derivative work right.

The music industry relies on different entities to license and administer rights in musical

works, principally because of a variety of legal restrictions and industry practices that

have grown up over time. This balkanized licensing scheme was not overly problematic

during the analog age, when determining the boundaries between rights was relatively

straightforward. In pre-digital days, radio and record distributors represented distinct

commercial channels with different licensing needs. Today, however, digital providers

often merge these roles. As a result, the demarcations between traditional licensing

categories are no longer as clear—especially with respect to the relation between

reproduction and distribution rights, on the one hand, and public performance, on the

other. The current complexity of the music licensing marketplace is attributable at least

in part to the blurring of the traditional lines of exploitation.

CFA & Public Knowledge First Notice Comments at 1; About Us, PUBLIC KNOWLEDGE,

https://www.publicknowledge.org/about-us (last visited Jan. 25, 2015).

17 U.S.C. § 106(1), (3).

Id. § 106(2).

Id. § 106(5).

Id. § 106(4).

See Buffalo Broad. Co., Inc., v. ASCAP, 744 F.2d 917, 920 (2d Cir. 1984) (“The ‘synch’ right is a

form of the reproduction right also created by statute as one of the exclusive rights enjoyed by the

(2d Cir. 1995) (observing that a defendant “might have infringed [plaintiff’s] exclusive right to

prepare derivative works” by synchronizing music to an audiovisual work, but the court “need

not resolve that question” as copying (and a defense to this right) were already proven).

U.S. Copyright Office Copyright and the Music Marketplace

2. Reproduction and Distribution Rights

a. Historical Background

Until the early twentieth century, owners of musical works were compensated primarily

through the reproduction and distribution of sheet music. Sales of sheet music were a

significant source of revenue for music publishers for a long time.

And prices for sheet

music were, as they are today, set in the free market.

By the early 1900s, however, technological advances made music available for the first

time via “mechanical” renderings of songs captured in player piano rolls and

phonograph records.

Although music publishers insisted that physical embodiments

of their works were copies, the Supreme Court held otherwise in the 1908 case White-

Smith Music Publishing v. Apollo, reasoning that such reproductions were not in a form

that human beings could “see and read.”

With the enactment of the 1909 Copyright Act, however, Congress overrode the Court’s

decision and recognized copyright owners’ exclusive right to make and distribute, and

authorize the making and distribution, of phonorecords—i.e., mechanical

reproductions—of musical works.

At the same time, Congress was concerned about a

lack of competition in the marketplace—in particular, it was alleged that the Aeolian

Company, a manufacturer of player pianos, was seeking to buy up exclusive rights from

publishers to create a monopoly in piano rolls.

To address that concern, Congress

simultaneously created a compulsory license for mechanical reproductions of musical

works—the first compulsory license in U.S. copyright law—establishing a statutory rate

of 2 cents per copy.

See KOHN at 674. By 1919, a single department store chain—Woolworth’s—was selling over 200

million copies of sheet music annually. Id. at 6.

Sheet music was generally sold for 10 cents per copy. Id. at 6.

Id. at 6-7.

White-Smith Music Publ’g Co. v. Apollo Co., 209 U.S. 1, 8-9, 17-18 (1908).

H.R. REP. NO. 60-2222, at 6-8 (1909); see also Miller v. Goody, 139 F. Supp. 176, 182 (S.D.N.Y. 1956).

H.R. REP. NO. 59-7083, pt. 2, at 5 (1907); RUSSELL SANJEK UPDATED BY DAVID SANJEK, PENNIES

FROM HEAVEN 22-23 (1996).

H.R. REP. NO. 60-2222, at 7-8; Copyright Act of 1909, Pub. L. No. 60-349, §1(e), 35 Stat. 1075,

1075-76. Adjusted for inflation, the 2 cent rate would be more than 50 cents today. Music

Licensing Hearings (statement of David M. Israelite, President and Chief Executive Officer,

NMPA).

U.S. Copyright Office Copyright and the Music Marketplace

Though it has been amended several times, the 1909 compulsory license, originally set

forth in section 1(e) of the Act,

continues in force today. In the Copyright Act of 1976,

Congress recodified the compulsory license in section 115, and raised the statutory rate

to 2.75 cents.

At that time, Congress also created the Copyright Royalty Tribunal

(“CRT”)—with five commissioners appointed by the President—to adjust the royalty

rate thereafter.

The CRT was replaced in 1993 by the Copyright Arbitration Royalty

Panel (“CARP”) system; rather than permanent appointees, the CARP arbitrators were

convened for specific rate proceedings.

The CARP system, in turn, was replaced in

2005 by the current system, the Copyright Royalty Board (“CRB”), which is composed of

three administrative judges appointed by the Librarian of Congress.

In 1995, Congress enacted the Digital Performance Right in Sound Recordings Act of

1995 (“DPRSRA”), which, in addition to granting a digital performance right for sound

recordings, amended section 115 to expressly cover the reproduction and distribution of

musical works by digital transmission, or DPDs.

The 1995 legislation recognized what

H.R. REP. NO. 94-1476, at 111 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5726. Notably, the

up to the adoption of the 1976 Copyright Act, but music publishers and composers ultimately

chose to oppose such a change, opting instead for the three-quarter cent rate increase. See U.S.

OF THE

U.S. COPYRIGHT LAW 33, 36 (Comm. Print 1961) (“GENERAL REVISION OF COPYRIGHT

REPORT”); S. REP. NO. 94-473, at 91-92 (1975); see also Music Licensing Reform: Hearing Before the

Subcomm. on Intell. Prop. of the S. Comm. on the Judiciary, 109th Cong. (2005) (“Music Licensing

Reform Hearing”) (statement of Marybeth Peters, Register of Copyrights), available at

http://copyright.gov/docs/regstat071205.html (stating that publishers and songwriters were

concerned that elimination of the statutory license would cause “unnecessary disruptions in the

music industry”).

(1993).

17 U.S.C. §§ 801-805; Copyright Royalty and Distribution Reform Act of 2004, Pub. L. No. 108-

419, 118 Stat. 2341. The statute calls the ratesetting body the “Copyright Royalty Judges.” See 17

U.S.C. § 801. But it is more commonly referred to as the “Copyright Royalty Board,” including in

the regulations, and this report uses that convention. See 37 C.F.R. § 301.1 (“The Copyright

Royalty Board is the institutional entity in the Library of Congress that will house the Copyright

Royalty Judges . . . .”).

See S. REP. NO. 104-128, at 10 (1995), reprinted in 1995 U.S.C.C.A.N. 356, 357 (“The purpose of

[this Act] is to ensure that performing artists, record companies and others whose livelihood

depends upon effective copyright protection for sound recordings, will be protected as new

technologies affect the ways in which their creative works are used. . . . In addition, the bill

clarifies the application of the existing reproduction and distribution rights of musical work and

U.S. Copyright Office Copyright and the Music Marketplace

is often referred to as “pass-through” licensing for DPDs, in that it allows a section 115

licensee, such as a record label, to authorize a third-party service to distribute DPDs of

the works covered under its license.

Significantly, the express recognition of digital transmissions of musical works as a right

covered by section 115 led to a lengthy rulemaking proceeding commenced by the

compulsory license with respect to various uses, which included the question of whether

interactive streaming services were required to procure mechanical licenses in addition

to performance licenses.

In 2008, recognizing that streaming services make and rely

upon server copies and other reproductions of musical works in order to operate, the

Office concluded that streaming services could utilize the section 115 compulsory

licensing process to cover the reproductions made to facilitate streaming.

In 2009, the

CRB adopted the first rates and terms under section 115 for interactive streaming

services.

As a result of these developments, on-demand streaming services seek both

mechanical and PRO licenses for the musical works they use.

b. Mechanical Rights Licensing

Statutory Licensing

Under section 115, those who seek to make and distribute reproductions of a musical

work may obtain a license to do so by serving a notice of intent (“NOI”) on the

phonorecords.

Once a person has served the NOI, the person must provide statements

of account and pay the statutorily prescribed royalties on a monthly basis.

If the name

and address of the owner of the work cannot be identified from the public records of the

sound recording copyright owners in the context of certain digital transmissions.”); see also 17

U.S.C. § 115(c)(3)(A).

17 U.S.C. § 115(c)(3)(A).

Compulsory License for Making and Distributing Phonorecords, Including Digital

Phonorecord Deliveries, 73 Fed. Reg. 40,802, 40,804-05 (July 18, 2008).

Compulsory License for Making and Distributing Phonorecords, Including Digital

Phonorecord Deliveries, 73 Fed. Reg. 66,173, 66,174 (Nov. 7, 2008) (“The interim regulation

clarifies that (1) whenever there is a transmission that results in a DPD, all reproductions made

for the purpose of making the DPD are also included as part of the DPD, and (2) limited

downloads qualify as DPDs.”).

Mechanical and Digital Phonorecord Delivery Rate Determination Proceeding, 74 Fed. Reg.

4510, 4514-15 (Jan. 26, 2009); 37 C.F.R. §§ 385.1-385.5, 385.10-385.17.

17 U.S.C. § 115(b)(1).

17 U.S.C. § 115(c)(5).

U.S. Copyright Office Copyright and the Music Marketplace

In that case, the user must

pay a filing fee to the Office but does not need to deposit royalties.

The compulsory license under section 115 is available only after a recording has been

made and distributed to the public under the authority of the copyright owner.

Consequently, the initial recording of a musical work, or “first use,” does not fall under

the compulsory license, and the copyright owner has the authority to determine whether

and how the work is first reproduced and distributed. Once a work is eligible for

statutory licensing, section 115 limits the way the work can be exploited. A section 115

license includes the right to make a musical arrangement of the song but does not permit

the user to change the basic melody or fundamental character of the work.

As noted above, the CRB is the administrative body responsible for establishing

statutory rates and terms under the section 115 license, a process that by statute takes

place every five years.

While copyright owners and users are free to negotiate

voluntary licenses that depart from the statutory rates and terms, in practical effect the

CRB-set rate acts as a ceiling for what the owner may charge. Rates for the license are

established under a standard set forth in section 801(b)(1) of the Copyright Act, which

requires the CRB to weigh several policy-oriented objectives:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his creative work and

the copyright user a fair income under existing economic conditions.

user in the product made available to the public with respect to

relative creative contribution, technological contribution, capital

investment, cost, risk, and contribution to the opening of new markets

for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries

involved and on generally prevailing industry practices.

The rates currently applicable under section 115 were the result of an industry-wide

negotiated agreement that was submitted to the CRB as a settlement of the most recent

17 U.S.C. § 115(b)(1).

See 17 U.S.C. § 115(c)(1); 37 C.F.R. § 201.18(f)(3).

KOHN at 792-93; see 17 U.S.C. § 115(a)(1).

17 U.S.C. § 115(a)(2).

KOHN at 742; 17 U.S.C. § 804(b)(4).

17 U.S.C. § 801(b)(1).

U.S. Copyright Office Copyright and the Music Marketplace

ratesetting proceeding.

The current rate to make and distribute permanent downloads

or physical phonorecords of a musical work is 9.1 cents per copy.

For ringtones, the

rate is 24 cents per use.

The royalty rate to make reproductions of musical works in

connection with interactive streaming, limited download services, and certain other

services is a percentage of the service’s revenue ranging from 10.5% to 12%, subject to

certain minimum royalty floors, and after deducting royalties paid by the service for the

public performance of those works.

It may seem counterintuitive that ringtones—which typically use only short excerpts of

musical works—have a significantly higher royalty rate than full-length reproductions.

Because ringtones abbreviate the full-length work, it was not immediately clear whether

ringtones were eligible for the section 115 license. As a result, many ringtone sellers

entered into privately negotiated licensing arrangements with publishers at rates well

above the statutory rate for the full use of the song.

In 2006, the Copyright Office

resolved the section 115 issue, opining that ringtones were subject to compulsory

licensing.

But in the ensuing ratesetting proceeding before the CRB, music publishers

were able to introduce the previously negotiated agreements as marketplace

benchmarks, and as a result secured a much higher rate for ringtones than the rate for

full songs.

Voluntary Licenses

Section 115 provides that a license that is voluntarily negotiated between a copyright

owner and user will be given effect in lieu of the rates and terms set by the CRB.

Although the use of the section 115 statutory license has increased in recent years with

the advent of digital providers seeking to clear large quantities of licenses, mechanical

licensing is still largely accomplished through voluntary licenses that are issued through

Adjustment of Determination of Compulsory License Rates for Mechanical and Digital

Phonorecords, 78 Fed. Reg. 67,938, 67,939 (Nov. 12, 2013).

For songs over five minutes, the rate is higher—1.75 cents per minute or fraction thereof. 37

C.F.R. § 385.3(a).

37 C.F.R. § 385.3(b).

37 C.F.R. §§ 385.12-385.14, 385.23.

Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, 71 Fed. Reg. 64,303,

64,308-09 (Nov. 1, 2006) (discussing “voluntary license agreements granting the labels the right to

create ringtones at specified mutually-negotiated royalty rates”).

Id. at 64,303.

Mechanical and Digital Phonorecord Delivery Rate Determination Proceeding, 74 Fed. Reg. at

4517-18; id. at 4522 (explaining that those licenses constitute “valuable rate evidence from the

marketplace for” ringtones but not for “other products at issue in this proceeding (i.e., CDs and

permanent downloads)”).

17 U.S.C. § 115(c)(3)(E)(i).

U.S. Copyright Office Copyright and the Music Marketplace

a mechanical licensing agency such as HFA or by the publisher directly.

While HFA

and other licensors typically incorporate the key elements of section 115 into their direct

licenses, they may also vary those terms to some degree, such as by permitting quarterly

accountings rather than the monthly statements required under the statute.

100

That said,

as observed above, the terms of the statutory license act as a ghost in the attic, effectively

establishing the maximum amount a copyright owner can seek under a negotiated

mechanical license.

101

Recent Reform Efforts

The last significant legislative effort to modernize mechanical licensing took place nearly

a decade ago. In 2006, Representatives Lamar Smith and Howard Berman introduced

the Section 115 Reform Act (“SIRA”).

102

SIRA would have created a blanket mechanical

license for digital services, while leaving the remainder of section 115 intact for physical

reproductions (and also not affecting performance rights).

SIRA included several notable features.

103

It would have established a “general

designated agent” with the possibility of additional designated agents, provided they

represented at least 15% of the music publishing market. Copyright owners would elect

to be represented by a designated agent, with the general designated agent representing

any copyright owners that failed to make such an election. Each designated agent

would have been required to maintain a searchable electronic database of musical works

represented by that agent. The cost of establishing such databases would have been

shared by designated agents and licensees, with cost-sharing amounts determined by

the CRB. The CRB would also have established rates and terms for the license itself, and

there would have been an interim ratesetting mechanism for new types of services.

There were also provisions addressing distribution of unclaimed funds and audit rights.

SIRA enjoyed support from key industry participants, including NMPA, DiMA, SGA,

and the PROs.

104

Although the bill was forwarded to the full Judiciary Committee, due

to opposition from other parties, it was not reported out.

105

W. Jonathan Cardi, Über-Middleman: Reshaping the Broken Landscape of Music Copyright, 92 IOWA

L. REV. 835, 841-42 (2007).

100

KOHN at 771.

101

Id. at 771-72.

102

SIRA, H.R. 5553, 109th Cong. (2006). SIRA was later incorporated into the Copyright

Modernization Act of 2006, H.R. 6052, 109th Cong. (2006).

103

See generally Copyright Modernization Act of 2006, H.R. 6052; Skyla Mitchell, Reforming Section

115: Escape from the Byzantine World of Mechanical Licensing, 24 C

ARDOZO ARTS & ENT. L.J. 1239,

1271 (2007).

104

Mitchell, Reforming Section 115: Escape from the Byzantine World of Mechanical Licensing at 1277.

Groups such as Public Knowledge and the Electronic Frontier Foundation opposed SIRA because

U.S. Copyright Office Copyright and the Music Marketplace

SIRA followed—and was perhaps an industry response to—an earlier 2005 proposal

from the Copyright Office. Then-Register of Copyrights Marybeth Peters testified before

Congress to propose a “21st Century Music Reform Act.”

106

Among other things, that

proposal would have effectively repealed the section 115 statutory license, and would

have authorized the establishment of “music rights organizations” (“MROs”) that could

license both performance and mechanical rights on a blanket basis. The proposal also

conditioned an MRO’s recovery of statutory damages on the MRO having made publicly

available the list of works it was authorized to license. While industry participants

agreed in principle with the basic goals of the Copyright Office’s proposal, they

expressed concerns about many of its specifics, including the lack of a limit on the

number of MROs, antitrust issues, and administrative burdens.

107

3. Public Performance Rights

a. The PROs

As mentioned above, although musical compositions were expressly made subject to

exclusive right to publicly perform their compositions until 1897.

108

Though this right

represented a new way for copyright owners to derive profit from their musical works,

the sheer number and fleeting nature of public performances made it impossible for

case of infringement.

109

ASCAP was established in 1914, followed by other PROs, to

of its provisions regarding temporary copies and recognition that interactive streaming involves

the making of DPDs. Id. at 1277-81.

105

See Reforming Section 115 of the Copyright Act for the Digital Age: Hearing Before the Subcomm. on

Courts, the Internet, and Intell. Prop. of the H. Comm. on the Judiciary, 110th Cong. 4 (2007)

(“Reforming Section 115 Hearing”) (statement of Rep. Howard Coble).

106

See generally Copyright Office Views on Music Licensing Reform: Hearing Before the Subcomm. on

Courts, the Internet, and Intell. Prop. of the H. Comm. on the Judiciary, 109th Cong. 21-36 (2005)

(“Copyright Office Views on Music Licensing Reform Hearing”) (statement of Marybeth Peters,

107

Id. at 56-57 (letter from Jonathan Potter, Executive Director, DiMA); id. at 59-60 (letter from

Steven M. Marks, RIAA); id. at 99 (comments of ASCAP); id. at 62-64 (comments of NMPA).

108

See Steve Wilf, The Making of the Post-War Paradigm in American Intellectual Property Law, 31

OLUM. J.L. & ARTS 139, 176 (2008); Noel L. Hillman, Intractable Consent: A Legislative Solution to

the Problem of Aging Consent Decrees in United States v. ASCAP and United States v. BMI, 8 F

ORDHAM

INTELL. PROP. MEDIA & ENT. L.J. 733, 737 (1998).

109

BMI v. CBS, 441 U.S. 1, 4-5 (1979); see also Alden-Rochelle, Inc. v. ASCAP, 80 F. Supp. 888, 891

(S.D.N.Y. 1948).

U.S. Copyright Office Copyright and the Music Marketplace

address the logistical issue of how to license and collect payment for the public

performance of musical works in a wide range of settings.

110

Today, the PROs provide various different types of licenses depending upon the nature

of the use. Anyone who publicly performs a musical work may obtain a license from a

PRO, including terrestrial, satellite and internet radio stations, broadcast and cable

television stations, online services, bars, restaurants, live performance venues, and

commercial establishments that play background music.

Most commonly, licensees obtain a blanket license, which allows the licensee to publicly

perform any of the musical works in a PRO’s repertoire for a flat fee or a percentage of

total revenues.

111

Some users opt for a blanket license due to its broad coverage of

musical works and relative simplicity as compared to other types of licenses. Large

commercial establishments such as bars, restaurants, concert venues, stores, and hotels

often enter into blanket licenses to cover their uses, paying either a percentage of gross

revenues or an annual flat fee, depending on the establishment and the type and amount

of use.

112

Terrestrial radio stations obtain blanket licenses from PROs as well, usually by

means of the RMLC.

113

Many television stations, through the TMLC, also obtain blanket

licenses.

114

Less commonly used licenses include the per-program or per-segment license, which

allows the licensee to publicly perform any of the musical works in the PRO’s repertoire

for specified programs or parts of their programming, in exchange for a flat fee or a

percentage of that program’s advertising revenue.

115

Unlike a blanket license, the per-

program or per-segment license requires more detailed reporting information, including

program titles, the specific music selections used, and usage dates, making the license

more burdensome for the licensee to administer.

116

Users can also license music directly from music publishers through a direct license or a

source license. A direct license is simply a license agreement directly negotiated

110

BMI v. CBS, 441 U.S. at 4-5; see also Alden-Rochelle, 80 F. Supp. at 891.

111

Meredith Corp., 1 F. Supp. 3d at 190; BMI v. CBS, 441 U.S. at 5.

112

See KOHN at 1263, 1275-80. The Copyright Act exempts many small commercial establishments

from the need to obtain a public performance license. See 17 U.S.C. § 110(5).

113

David Oxenford, What is the RMLC, And Why Should a Radio Station Pay Their Bill?, BROAD. L.

BLOG (Aug. 24, 2012), http://www.broadcastlawblog.com/2012/08/articles/what-is-the-rmlc-and-

why-should-a-radio-station-pay-their-bill.

114

Meredith Corp., 1 F. Supp. 3d at 189-90.

115

See generally Lauren M. Bilasz, Note: Copyrights, Campaigns, and the Collective Administration of

Performance Rights: A Call to End Blanket Licensing of Political Events, 32 C

ARDOZO L.REV. 305, 323 &

nn.111-112 (2010) (descriptions of each license).

116

See, e.g., KOHN at 1266 (discussing per-program licenses).

U.S. Copyright Office Copyright and the Music Marketplace

between the copyright owner and the user who intends to publicly perform the musical

work. Source licenses are commonly used in the motion picture industry, because the

PROs are prohibited from licensing public performance rights directly to movie theater

owners.

117

Instead, film producers license public performance rights for the music used

in films at the same time as the synchronization rights, and pass the performance rights

along to the theaters that will be showing their films.

118

In the context of motion

pictures, source licenses do not typically encompass non-theatrical performances, such

as on television. Thus, television stations, cable companies, and online services such as

Netflix and Hulu must obtain public performance licenses from the PROs to cover the

public performance of musical works in the shows and movies they transmit to end

users.

119

b. Antitrust Oversight

Basic Antitrust Principles

Unlike the mechanical right, the public performance of musical works is not subject to

compulsory licensing under the Copyright Act. But, as described below, ASCAP and

BMI are subject to government antitrust regulation through longstanding consent

decrees. And while neither SESAC nor GMR is subject to such direct antitrust

regulation, each, of course, must abide by generally applicable antitrust law, which is

enforceable by the government or through private causes of action. SESAC, for example,

has recently been the subject of private antitrust suits, as discussed below. A detailed

explanation of the antitrust rationale that underlies the PRO consent decrees is beyond

the scope of this study. But a brief discussion of some basic antitrust principles may be

helpful in understanding the motivation behind the decrees.

Section 1 of the Sherman Antitrust Act prohibits “[e]very contract, combination in the

form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the

several [s]tates.”

120

As the Supreme Court has opined, however, “Congress could not

have intended a literal interpretation of the word ‘every,’” and as a result, courts

117

This prohibition was a result of antitrust litigation brought by movie theater owners in the

1940s. Alden-Rochelle, 80 F. Supp. 888; see also Christian Seyfert, Copyright and Anti-Trust Law:

Public Performance Rights Licensing of Musical Works into Audiovisual Media 19 (Sept. 1, 2005)

(unpublished LL.M. thesis, Golden Gate University School of Law) (“Seyfert”), available at http://

digitalcommons.law.ggu.edu/theses/13.

118

See Seyfert at 19.

119

Id.; see also Netflix First Notice Comments at 1-2; ASCAP Reports Increased Revenues in 2011,

ASCAP (Mar. 8, 2012), http://www.ascap.com/press/2012/0308_ascap-reports.aspx (reflecting

blanket licenses with Netflix and Hulu). Licensing of performance rights from SESAC and GMR

occurs without direct antitrust oversight, and those smaller PROs may refuse to license their

repertoires to potential licensees.

120

15 U.S.C. § 1.

U.S. Copyright Office Copyright and the Music Marketplace

“analyze[] most restraints under the so-called ‘rule of reason.’”

121

The rule of reason test

requires a court to not only find a restraint of trade, but also determine whether that

restraint is unreasonable.

122

The Supreme Court has also recognized, however, that

“[o]nce experience with a particular kind of restraint enables the Court to predict with

confidence that the rule of reason will condemn it, it has applied a conclusive

presumption that the restraint is unreasonable.”

123

Thus, certain arrangements—

including price-fixing agreements—are deemed per se violations of section 1.

124

A “tying” arrangement is another kind of business practice that raises antitrust concerns.

A tying arrangement is “an agreement by a party to sell one product but only on the

condition that the buyer also purchases a different (or tied) product.”

125

Such

arrangements are unlawful “if the seller has ‘appreciable economic power’ in the tying

product market and if the arrangement affects a substantial volume of commerce in the

tied market.”

126

But as the Federal Trade Commission (“FTC”) observes, “[t]he law on

tying is changing.”

127

While the Supreme Court “has treated some tie-ins as per se

illegal in the past, lower courts have started to apply the more flexible ‘rule of reason’ to

assess the competitive effects of tied sales.”

128

Department of Justice Consent Decrees

Since 1941, ASCAP and BMI’s licensing practices have been subject to antitrust consent

decrees overseen by the Antitrust Division of the DOJ and enforced by federal district

courts in New York City.

129

Those consent decrees were implemented in reaction to

alleged anticompetitive practices of ASCAP and BMI. Specifically, when originally

formed, both PROs acquired the exclusive right to negotiate members’ public

performance rights, and forbade their members from entering into direct licensing

121

Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 342-43 (1982).

122

Associated Press v. United States, 326 U.S. 1, 27 (1945).

123

Arizona, 457 U.S. at 343-44.

124

Id. at 344-45.

125

N. Pac Ry. Co. v. United States, 356 U.S. 1, 5 (1958).

126

Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 462 (1992).

127

Tying the Sale of Two Products, FTC, http://www.ftc.gov/tips-advice/competition-guidance/

guide-antitrust-laws/single-firm-conduct/tying-sale-two-products (last visited Jan. 26, 2015).

128

Id.

129

See generally United States v. BMI, 275 F.3d 168, 171-72 (2d Cir. 2001) (describing the history); see

also Antitrust Consent Decree Review, U.S.

DOJ, http://www.justice.gov/atr/cases/ascap-bmi-decree-

review.html (last visited Jan. 26, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

arrangements. Additionally, both offered only blanket licenses covering all of the music

in their respective repertoires.

130

In the 1930s, the DOJ’s Antitrust Division investigated ASCAP for anticompetitive

conduct—specifically that ASCAP’s licensing arrangements constituted price-fixing

and/or unlawful tying.

131

The government subsequently filed federal court actions in

1934 and 1941, arguing that the exclusive blanket license—as the only license offered at

the time—was an unlawful restraint of trade and that ASCAP was charging arbitrary

prices as a result of an illegal copyright pool.

132

While the first case was never fully

litigated after the government was granted a mid-trial continuance, the latter action was

settled with the imposition of a consent decree in 1941.

133

That consent decree has been

modified twice, first in 1950 and most recently in 2001.

134

The United States also

pursued antitrust claims against BMI, resulting in a similar consent decree in 1941.

135

The 1941 BMI consent decree was superseded by a new decree in 1966, which was last

amended in 1994.

136

Although the ASCAP and BMI consent decrees are not identical, they share many of the

same features. As most relevant here, the PROs may only acquire nonexclusive rights to

license members’ public performance rights; must grant a license to any user that

applies, on terms that do not discriminate against similarly situated licensees; and must

accept any songwriter or music publisher that applies to be a member, as long as the

writer or publisher meets certain minimum standards.

137

ASCAP and BMI are also required to offer alternative licenses to the blanket license.

One option is the adjustable fee blanket license, a blanket license with a carve-out that

reduces the flat fee to account for music directly licensed from PRO members. Under

the consent decrees, ASCAP and BMI must also provide, when requested, “through-to-

the-audience” licenses to broadcast networks that cover performances not only by the

networks themselves, but also by affiliated stations that further transmit those

130

Seyfert at 6, 20; see also Wilf at 177.

131

Seyfert at 20-21.

132

BMI v. CBS, 441 U.S. at 10.

133

Seyfert at 20-21.

134

BMI v. CBS, 441 U.S. at 11.

135

Id. at 12 n.20.

136

Seyfert at 22; see also BMI Consent Decree.

137

ASCAP Consent Decree §§ IV.B-C, VI, VIII, XI; BMI Consent Decree §§ IV.A, V, VIII.

U.S. Copyright Office Copyright and the Music Marketplace

performances downstream.

138

ASCAP and BMI are also required to provide per-

program and per-segment licenses, as are described above.

139

ASCAP is expressly barred from licensing any rights other than its members’ public

performance rights (i.e., ASCAP may not license mechanical or synchronization

rights).

140

Although BMI’s consent decree lacks a similar prohibition, in practice BMI

does not license any rights other than public performance rights.

141

Finally, and perhaps most significantly, prospective licensees that are unable to agree to

a royalty rate with ASCAP or BMI may seek a determination of a reasonable license fee

from one of two federal district court judges in the Southern District of New York.

142

The rate court procedures are discussed in greater detail below.

In response to requests by ASCAP and BMI to modify certain provisions of their decrees,

the DOJ’s Antitrust Division announced in June 2014 that it would be evaluating the

consent decrees, and has solicited and received extensive public comments on whether

and how the decrees might be amended.

143

Specifically, both ASCAP and BMI seek to

modify the consent decrees to permit partial grants of rights to the PROs, to replace the

current ratesetting process with expedited arbitration, and to allow ASCAP and BMI to

provide bundled licenses that include multiple rights in musical works.

144

The DOJ has

expressed its intent to “examine the operation and effectiveness of the Consent Decrees,”

particularly in light of the changes in the way music has been delivered and consumed

since the most recent amendments to those decrees.

145

At the same time, the DOJ is

138

ASCAP Consent Decree § V; BMI Consent Decree § IX.

139

ASCAP Consent Decree §§ II.J-K, VII; BMI Consent Decree § VIII.B. Note that under the

ASCAP consent decree, the per-segment license has a number of conditions that must be met

before it can be used. ASCAP Consent Decree § VII.

140

ASCAP Consent Decree § IV.A.

141

See BMI, Comments on Department of Commerce Green Paper at 4-5 (Nov. 13, 2013), available

at http://www.ntia.doc.gov/files/ntia/bmi_comments.pdf.

142

ASCAP Consent Decree § IX; BMI Consent Decree § XIV.

143

Antitrust Consent Decree Review, U.S. DOJ, http://www.justice.gov/atr/cases/ascap-bmi-decree-

review.html (last visited Jan. 26, 2015).

144

ASCAP, Comments Submitted in Response to the DOJ’s Antitrust Consent Decree Review at

18, 22, 31 (Aug. 6, 2014), available at

http://www.justice.gov/atr/cases/ascapbmi/comments/307803.pdf (“ASCAP Antitrust Consent

Decree Review Comments”); BMI, Comments Submitted in Response to the DOJ’s Antitrust

Consent Decree Review at 2 (Aug. 6, 2014), available at http://www.justice.gov/atr/cases/ascapbmi/

comments/307859.pdf (“BMI Antitrust Consent Decree Review Comments”).

145

Antitrust Consent Decree Review, U.S. DOJ, http://www.justice.gov/atr/cases/ascap-bmi-decree-

review.html (last visited Jan. 26, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

conducting a related investigation to determine whether there has been a coordinated

effort among music publishers and PROs to raise royalty rates.

146

Key Antitrust Cases

In addition to the DOJ actions that led to the adoption of the consent decrees, PRO

practices have been the subject of private antitrust actions, including a number related to

the consent decrees. The decisions in these cases serve to highlight courts’ approach to

the collective licensing of public performance rights and administration of the consent

decrees.

In the 1979 Supreme Court case of BMI v. CBS, CBS had sued ASCAP and BMI, alleging

that the blanket license violated antitrust laws by constituting “illegal price fixing, an

unlawful tying arrangement, a concerted refusal to deal, and a misuse of copyrights.”

147

Rather than declaring the blanket licenses per se unlawful, the Court held that they

should be evaluated under a “rule of reason” test, observing that a blanket license could

be useful to address the problem of negotiating thousands of individual licenses. The

Court also noted as relevant the fact that there were no “legal, practical, or conspiratorial

impediment[s]” to obtaining direct licenses, indicating licensees have a real choice to

license directly as an alternative to the blanket license.

148

On remand, the court of

appeals upheld the blanket license under the rule of reason, explaining that it did not

unreasonably restrain competition because CBS could feasibly obtain direct licenses

from copyright owners.

149

After the BMI v. CBS litigation, a number of other courts examined the blanket license,

and sustained it against antitrust challenges under rule-of-reason analysis. In Buffalo

Broadcasting v. ASCAP, for example, the Second Circuit concluded that, in the context of

local television stations, the blanket license did not violate the Sherman Act because per-

program licenses, direct licenses, and source licenses were realistic alternatives to the

blanket license.

150

A federal district court in the District of Columbia reached a similar

conclusion with respect to cable stations.

151

146

Ed Christman, Dept. of Justice Sends Doc Requests, Investigating UMPG, Sony/ATV, BMI and

ASCAP Over Possible “Coordination,” B

ILLBOARD (July 13, 2014), http://www.billboard.com/biz/

articles/news/publishing/6157513/dept-of-justice-sends-doc-requests-investigating-umpg-

sonyatv. Members of the DOJ Antitrust Division attended and observed the Office’s roundtables

for this study in Nashville and New York.

147

BMI v. CBS, 441 U.S. at 6.

148

Id. at 24.

149

CBS v. ASCAP, 620 F.2d 930, 938-39 (2d Cir. 1980).

150

Buffalo Broad. v. ASCAP, 744 F.2d at 926-32; see also id. at 934 (Winter, J., concurring) (“[S]o long

as composers or [publishers] have no horizontal agreement among themselves to refrain from

U.S. Copyright Office Copyright and the Music Marketplace

More recent litigation has involved royalty rate disputes. In 2012, the Second Circuit

addressed rate disputes involving ASCAP and BMI, on the one hand, and DMX, a

background music service, on the other, regarding the rate to be paid for an adjustable-

fee blanket license.

152

In arguing for a lower rate, DMX pointed to direct licenses it had

entered into with a number of copyright owners, most of them smaller publishers, on

relatively favorable terms for DMX.

153

DMX also relied on a direct license from

Sony/ATV, a major music publisher. That deal gave Sony/ATV a pro rata share at the

same annual rate as other smaller publishers, but also provided Sony a $2.4 million

advance and a $300,000 administrative fee.

154

The court found this and the other direct

deals entered into by DMX to be persuasive benchmarks and that the rate courts

reasonably considered DMX’s direct licenses in their rate determinations. Although the

PROs argued that the substantial advance paid to Sony/ATV rendered that license an

inadequate basis to set rates for the remainder of publishers covered by PRO licenses,

the court of appeals affirmed the rates adopted by the rate courts.

155

There has also been recent litigation between the PROs and Pandora, the internet radio

service. In 2011 and 2013, respectively, in response to demands by their major publisher

members, ASCAP and BMI both amended their rules to allow music publishers to

withdraw from PRO representation the right to license their public performance rights

for “new media” uses—i.e., digital streaming services—while still allowing the PROs to

license to other outlets on their behalf.

156

As a result, Pandora—faced with a potential

loss of PRO licensing authority for the major publishers’ catalogs—proceeded to

negotiate licenses directly with EMI Music Publishing Ltd. (“EMI”),

157

Sony/ATV and

UMPG at varying rates that brought the publishers higher fees than those they were

receiving under the PRO system. Pandora, however, challenged the publishers’ partial

withdrawal of rights before both the ASCAP and BMI rate courts. In each case—though

applying slightly differing logic—the court ruled that under the terms of the consent

source or direct licensing and there is no other artificial barrier, such as a statute, to their use, a

non-exclusive blanket license cannot restrain competition.”).

151

Nat’l Cable Television Ass’n, Inc. v. BMI, 772 F. Supp. 614, 628 (D.D.C. 1991).

152

BMI v. DMX, 683 F.3d at 35, 43.

153

Id. at 38.

154

Id.

155

Id. at 47-49.

156

In re Pandora Media, Inc., Nos. 12-cv-8035, 41-cv-1395, 2013 WL 5211927, at *2 (S.D.N.Y. Sept. 17,

2013); BMI v. Pandora Media, Inc., Nos. 13-cv-4037, 64-cv-3787, 2013 WL 6697788, at *2-3 (S.D.N.Y.

Dec. 19, 2013).

157

Not long afterward, EMI’s music catalog was acquired through a transaction with Sony/ATV.

In re Pandora, 2013 WL 5211927, at *3.

U.S. Copyright Office Copyright and the Music Marketplace

decree, music publishers could not withdraw selected rights; rather, a publisher’s songs

must be either “all in” or “all out” of the PRO.

158

Following these rulings, the ASCAP rate court held a bench trial and issued a decision

on the merits of the rate dispute between ASCAP and Pandora.

159

Relying on Pandora’s

negotiated agreements with the major publishers as benchmarks, ASCAP had sought a

rate of 1.85% of revenues for 2011-2012, 2.50% for 2013, and 3.00% for 2014-2015.

160

The

court determined that a rate of 1.85% of revenues with no increase was appropriate for

the entire period. In so concluding, the court rejected ASCAP’s reliance on the higher-

priced licensing agreements with the major publishers, concluding that Sony/ATV and

UMPG had engaged in improper negotiation tactics, such as by declining to provide lists

of the works the publishers represented so that Pandora could remove those works from

its service in the event of a failure to reach agreement.

161

The Pandora decision is

addressed in greater depth in Part IV.

SESAC has also recently been the target of antitrust suits by local television stations and

the RMLC, both of which have accused SESAC of engaging in anticompetitive conduct

by taking steps to make its blanket license the only viable option for these users, such as

by unreasonably and steeply raising the cost of the per-program license and imposing

penalties on publishers that engage in direct licensing.

162

In October 2014, the local

television stations and SESAC agreed to a settlement in which SESAC agreed to pay

$58.5 million to the television stations and to provide a per-program license in addition

to a blanket license beginning January 1, 2016.

163

The RMLC suit against SESAC remains

pending.

c. Consent Decree Procedures

As noted, ASCAP and BMI are required by their consent decrees to grant a nonexclusive

license to publicly perform all of the works in their repertoires to any potential licensee

who makes a written application.

164

An entity that seeks a public performance license

begins the process by submitting such a request to the PRO. In the absence of an

established rate for the applicant’s use, the PRO and the applicant may then engage in

158

In re Pandora, 2013 WL 5211927, at *5-7; BMI, v. Pandora, 2013 WL 6697788, at *3-4.

159

Pandora Ratesetting, 6 F. Supp. 3d at 321-22.

160

Id. at 354.

161

Id. at 357-61.

162

Meredith Corp., 1 F. Supp. 3d at 192-93; RMLC v. SESAC, 29 F. Supp. 3d at 492-94.

163

Memorandum of Law in Support of Plaintiffs’ Unopposed Motion for Preliminary Approval of

Settlement at 1-2, 5, Meredith Corp., 1 F. Supp. 3d 180 (No. 09-cv-9177). TMLC, though not a party

to the litigation, was also a signatory to the settlement. Id. at 1 n.2.

164

ASCAP Consent Decree § VI; BMI Consent Decree § IV.A.

U.S. Copyright Office Copyright and the Music Marketplace

negotiations regarding the appropriate rate.

165

Significantly, however, under both

consent decrees, the mere submission of the application gives the applicant the right

immediately to begin using the musical works in the PRO’s repertoire without payment

of any fee or compensation during the pendency of negotiations or a ratesetting

proceeding.

166

If the PRO and licensee are unable to agree on a fee, either party may apply for a

determination of a reasonable fee by the applicable rate court.

167

The term “rate court” is

a bit of a misnomer, however; as noted above, rate disputes are handled by the federal

district judge in the Southern District of New York who has been assigned ongoing

responsibility for administration of the relevant consent decree.

168

Currently, the ASCAP

decree and ratesetting cases are overseen by Judge Denise Cote, and Judge Louis L.

Stanton oversees these matters with respect to BMI.

In a rate court proceeding, the PRO has the burden of proving that the royalty rate it

seeks is “reasonable,” and if the court determines that the proposed rate is not

reasonable, it will determine a reasonable rate itself.

169

In determining a reasonable fee,

the rate court is tasked with assessing the fair market value of the license, i.e., “what a

license applicant would pay in an arm’s length transaction.”

170

But antitrust concerns

also play a direct role: according to the Second Circuit, the rate courts are also obligated

to “tak[e] into account the fact that the PRO, as a monopolist, exercises disproportionate

power over the market for music rights.”

171

Since negotiations between PROs and potential licensees—as well as rate court

proceedings—can be lengthy, an applicant or a PRO may apply to the rate court to fix an

interim rate, pending final determination of the applicable rate. Under the two decrees,

such interim fees are supposed to be set by the court within three to four months.

172

Once the rate court fixes the interim rate, the licensee must pay the interim fee

165

ASCAP Consent Decree § IX.F; BMI Consent Decree § XIV.A.

166

ASCAP Consent Decree § IX.E; BMI Consent Decree § XIV.A.

167

ASCAP Consent Decree § IX.A; BMI Consent Decree § XIV.A.

168

Paul Fakler, Music Copyright Royalty Rate-Setting Litigation: Practice Before the Copyright Royalty

Board and How It Differs from ASCAP and BMI Rate Court Litigation, 33 L

ICENSING J. 1, 5 (2013),

available at http://www.arentfox.com/sites/default/files/FaklerLicensingJournalArticle.pdf.

169

ASCAP Consent Decree § IX.B-D; BMI Consent Decree § XIV.A.

170

Pandora Ratesetting, 6 F. Supp. 3d at 353 (citation omitted).

171

BMI v. DMX, 683 F.3d at 45 (internal quotation marks, citations, and alterations omitted).

172

The interim fee proceedings are to be completed within 90 days in ASCAP’s case and 120 days

in BMI’s case. See ASCAP Consent Decree § IX(F); BMI Consent Decree § XIV.B.

U.S. Copyright Office Copyright and the Music Marketplace

retroactively to the date of its license application.

173

Final royalty rates are also applied

retroactively.

174

Significantly, section 114(i) of the Copyright Act prohibits the rate court from

considering the licensing fees paid for digital performances of sound recordings in its

ratesetting proceedings for the public performance of musical works.

175

This provision

was included when Congress created a public performance right for sound recordings

with the 1995 enactment of the DPRSRA.

176

In theory, it was intended to protect

royalties for the public performance of musical works from being diminished as a result

of the grant of a public performance right for sound recordings in digital contexts.

177

4. Statutory License for Public and Noncommercial

Broadcasting

The activities of public and noncommercial educational broadcasters are subject to a

hodgepodge of music licensing protocols. Section 118 provides a statutory license that

covers such entities’ public performances of musical works and reproductions and

distributions that enable such performances.

178

The section 118 license, however, applies

only to over-the-air broadcasts.

179

Noncommercial broadcasters must clear digital

performance rights for musical works (e.g., for internet radio) with the PROs under the

provisions of the consent decrees as applicable.

180

In addition, the section 118 license does not extend to the use of sound recordings by

noncommercial broadcasters. For certain reproduction, distribution, and derivative

rights for sound recordings, noncommercial broadcasters rely on the exemption in

section 114(b), which applies to music “included in educational television and radio

programs . . . distributed or transmitted through public broadcasting entities.”

181

The

173

See id.

174

See id.

175

17 U.S.C. § 114(i).

176

DPRSRA § 3.

177

BMI First Notice Comments at 11.

178

17 U.S.C. § 118(c).

179

Id. § 118(c)(1), (f) (limiting performance license to “noncommercial educational broadcast

station[s]” as defined in 47 U.S.C. § 397); 47 U.S.C. § 397 (defining “noncommercial educational

broadcast station” as a “television or radio broadcast station”); see also NRBNMLC First Notice

Comments at 14 (describing section 118 license as being “confined to over-the-air

transmissions”).

180

See NRBNMLC First Notice Comments at 14-15 (explaining that for “digital transmission of

musical works . . . noncommercial broadcasters are required to negotiate with ASCAP, BMI, and

SESAC”).

181

17 U.S.C. § 114(b).

U.S. Copyright Office Copyright and the Music Marketplace

114(b) exemption does not apply to digital performances and related reproductions,

however.

182

For those uses, noncommercial broadcasters must obtain section 112 and

114 statutory licenses (discussed below).

183

C. Licensing Sound Recordings

1. Exclusive Rights in Sound Recordings

The owner of a sound recording fixed on or after February 15, 1972 possesses a number

of exclusive rights under the Copyright Act, including the right to make and distribute

copies or phonorecords (e.g., CDs and DPDs) of the work;

184

the right to create derivative

works (e.g., a new work based on an existing recording);

185

and the right to perform the

work publicly by means of a digital audio transmission (e.g., via internet or satellite

radio).

186

The Act exempts public performances of sound recordings by terrestrial radio

stations.

187

2. Reproduction and Distribution Rights

Except in the limited case of noninteractive streaming services that qualify for

compulsory licensing under sections 112 and 114, licenses to reproduce and distribute

sound recordings—such as those necessary to make and distribute CDs, transmit DPDs

and ringtones, or operate an interactive music service—are obtained through direct

negotiation between a licensee and the sound recording owner (usually a record label) in

the open market.

188

3. Public Performance Rights

a. Lack of Terrestrial Performance Right

In the 1995 DPRSRA, Congress gave sound recording owners an exclusive public

performance right, but one limited to digital audio transmissions, and created the

182

NPR First Notice Comments at 4-5. Section 114(b) extends to “educational television and radio

programs.” 17 U.S.C. § 114(b). (Note that section 114(b) defines “educational television and

radio programs” by referencing 47 U.S.C. § 397, but Congress deleted that definition from section

397 in 1978 without changing section 114(b). See 47 U.S.C. § 397 note. At the time of § 114(b)’s

enactment in 1976, the term was defined in section 397 as “programs which are primarily

designed for educational or cultural purposes.”).

183

NRBNMLC First Notice Comments at 2-3; NPR First Notice Comments at 3-4.

184

17 U.S.C. § 106(1), (3).

185

Id. § 106(2).

186

Id. § 106(6).

187

Id. § 114(d)(1).

188

See DiMA First Notice Comments at 8.

U.S. Copyright Office Copyright and the Music Marketplace

section 114 statutory license for noninteractive subscription providers, including satellite

radio, engaged in digital performances.

189

In 1998, Congress extended the section 114

compulsory license to expressly include webcasting as a covered activity.

190

It also

expanded the exemption for ephemeral copies in section 112 to cover the server copies

needed to digitally transmit sound recordings.

191

Traditional over-the-air broadcasts,

however, were expressly exempted from the sound recording performance right.

192

Congress drew this legal distinction based on perceived differences between digital and

traditional services, believing at the time that traditional broadcasters posed “no threat”

to the recording industry, in contrast to digital transmission services.

193

A longstanding

justification for the lack of a sound recording performance right has been the

promotional effect that traditional airplay is said to have on the sale of sound

recordings.

194

In the traditional view of the market, broadcasters and labels representing

stations exploit sound recordings to attract the listener pools that generate advertising

dollars, and, in return, sound recording owners receive exposure that promotes record

and other sales.

195

As discussed in Section III, apart from the fact that sound recordings help generate

billions of dollars annually for terrestrial radio stations, there are significant questions as

to whether the traditional view of the market—even if persuasive in earlier times—

remains credible today. Notably, in 2014, with 298 million active listeners, terrestrial

radio had “more than double the total of Pandora (79 million), Sirius XM (27 million)

and Spotify (14 million) combined.”

196

189

See generally DPRSRA.

190

DMCA § 405(a).

191

Id. §§ 402, 405(b).

192

See 17 U.S.C. § 114(d)(1).

193

See S. REP. NO. 104-128, at 14-15 (“It is the Committee’s intent to provide copyright holders of

sound recordings with the ability to control the distribution of their product by digital

transmissions, without hampering the arrival of new technologies, and without imposing new

and unreasonable burdens on radio and television broadcasters, which often promote, and

appear to pose no threat to, the distribution of sound recordings.”).

194

Id.

195

See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-10-862, TELECOMMUNICATIONS: THE PROPOSED

PERFORMANCE RIGHTS ACT WOULD RESULT IN ADDITIONAL COSTS FOR BROADCAST RADIO STATIONS

AND

ADDITIONAL REVENUE FOR RECORD COMPANIES, MUSICIANS, AND PERFORMERS 13-21 (2010),

available at http://www.gao.gov/assets/310/308569.pdf (“GAO

REPORT”).

196

Zach O’Malley, Truth in Numbers: Six Music Industry Takeaways From Year-End Data, FORBES

(Jan. 22, 2015), available at http://www.forbes.com/sites/zackomalleygreenburg/2015/01/22/truth-

U.S. Copyright Office Copyright and the Music Marketplace

Internationally, the United States is an outlier. Virtually all industrialized nations

recognize a more complete public performance right for sound recordings than does the

United States.

197

The failure of U.S. law to do the same causes U.S. record companies

and artists to forgo an estimated $70-100 million in royalties for foreign exploitations of

their works due to the lack of reciprocity.

198

Significantly, however, in recent years, the nation’s largest broadcast company,

iHeartMedia (formerly Clear Channel), has entered into licensing agreements with

WMG and a number of independent record labels (including Big Machine Records, the

record label of Taylor Swift, Rascal Flatts, and Tim McGraw) covering both terrestrial

and internet radio.

199

While the current CRB rate for streamed radio is a per-play rate,

these arrangements apparently feature a percentage-based or other alternative rate

structure for both digital and terrestrial uses.

200

Although the terms of these deals

remain private, reports indicate that iHeartMedia agreed to pay the smaller labels based

on an industry rate of 1% of advertising revenues for terrestrial uses, and perhaps a

larger sum to WMG.

201

In recent years there have also been various legislative efforts to provide for a more

complete public performance right,

202

as well as numerous congressional hearings

focused on expanding the right to cover traditional broadcast transmissions.

203

The

in-numbers-six-music-industry-takeaways-from-year-end-data/ (noting live music comprises 26%

and satellite radio subscription 10%).

197

Only a handful of countries—including Iran and North Korea—lack such a right, in addition to

the United States. See, e.g., A2IM First Notice Comments at 8; SoundExchange First Notice

Comments at 17.

198

GAO REPORT at 30 (estimates based on language of the Performance Rights Act, S. 379, 111th

Cong. (2009)). The NAB disputes these figures. NAB First Notice Comments at 29-30 & n.15.

199

See Ed Christman, Here’s Why Warner Music’s Deal with Clear Channel Could be Groundbreaking

for the Future of the U.S. Music Biz (Analysis), B

ILLBOARD (Sept. 12, 2013), http://

www.billboard.com/biz/articles/news/5694973/heres-why-warner-musics-deal-with-clear-

channel-could-be-groundbreaking.

200

Id.

201

Id.; see also Ben Sisario, Clear Channel-Warner Music Deal Rewrites the Rules on Royalties, N.Y.

TIMES (Sept. 12, 2013), http://www.nytimes.com/2013/09/13/business/media/clear-channel-

warner-music-deal-rewrites-the-rules-on-royalties.html.

202

See, e.g., Performance Rights Act, H.R. 848, S. 379, 111th Cong. (2009); Performance Rights Act,

H.R. 4789, S. 2500, 110th Cong. (2010); Free Market Royalty Act, H.R. 3219, 113th Cong. (2013).

203

See, e.g., Internet Streaming of Radio Broadcasts: Balancing the Interests of Sound Recording Copyright

Owners with Those of Broadcasters: Hearing Before the Subcomm. on Courts, the Internet, and Intell.

Prop. of the H. Comm. on the Judiciary, 108th Cong. (2004) (“Internet Streaming of Radio Hearing”);

Music Licensing Hearings.

U.S. Copyright Office Copyright and the Music Marketplace

complete sound recording performance right.

204

b. Section 112 and 114 Licenses

The section 114 statutory license allows different types of noninteractive digital music

services—free and paid internet radio services,

205

“preexisting” satellite radio services,

206

and “preexisting” music subscription services

207

—to perform sound recordings upon

compliance with the statutory license requirements, including the payment of royalties

as determined by the CRB.

208

In addition, recognizing that such digital services must

make server reproductions of sound recordings—sometimes called “ephemeral”

copies—to facilitate their digital transmissions, Congress established a related statutory

license under section 112 to authorize the creation of these copies.

209

Rates and terms for

the section 112 license are also established by the CRB.

The section 112 and 114 licenses for sound recordings are subject to a number of

technical limitations. For instance, services relying on the section 114 statutory license

are prohibited from publishing an advance program schedule or otherwise announcing

204

See, e.g., The Performance Rights Act and Parity Among Music Delivery Platforms: Hearing Before the

S. Comm. on the Judiciary, 111th Cong. 117-18 (2009) (”Performance Rights Act Hearing”) (statement

of Marybeth Peters, Register of Copyrights); Ensuring Artists Fair Compensation: Updating the

Performance Right and Platform Parity for the 21st Century: Hearing Before the Subcomm. on Courts, the

Internet, & Intellectual Prop. of the H. Comm. on the Judiciary, 111th Cong. 13-30 (2007) (“Ensuring

Artists Fair Compensation Hearing”) (statement of Marybeth Peters, Register of Copyrights);

Internet Streaming of Radio Hearing at 8-22 (statement of David O. Carson, General Counsel, U.S.

Print 1978), available at http://copyright.gov/reports/performance-rights-sound-recordings.pdf

(“P

ERFORMANCE RIGHTS REPORT”).

205

Free noninteractive internet radio services not exempt under 17 U.S.C. § 114(d)(1) qualify as

“eligible nonsubscription services,” and paid noninteractive internet radio services qualify as

“new subscription services” in the parlance of sections 112 and 114. See 17 U.S.C. § 114(j)(6), (8).

206

A preexisting satellite digital audio radio service is a subscription satellite audio radio service

provided pursuant to a satellite digital audio radio service license issued by the FCC on or before

July 31, 1998. Id. § 114(j)(10). Currently, there is only one satellite service, Sirius XM. See

Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital

Audio Radio Services, 78 Fed. Reg. 23,054, 23,055 (Apr. 17, 2013) (“PSS/Satellite II”).

207

A preexisting subscription service is a noninteractive audio-only service that was in existence

on or before July 31, 1998. 17 U.S.C. § 114(j)(11). Music Choice—which transmits music via cable

and satellite television and the internet—is an example of a pre-existing subscription service.

PSS/Satellite II, 78 Fed. Reg. at 23,055 n.5.

208

17 U.S.C. § 114(d)(2).

209

DMCA § 402; 17 U.S.C. § 112(e)(1); H.R. REP. NO. 105-796, at 89 (1998) (Conf. Rep.).

U.S. Copyright Office Copyright and the Music Marketplace

or identifying in advance when a specific song, album or artist will be played.

210

Another example is the “sound recording performance complement,” which limits the

number tracks from a single album or by a particular artist that may be played during a

3-hour period.

211

Payment and reporting of royalties under the section 112 and 114 licenses are made to a

single non-profit agent: SoundExchange.

212

SoundExchange was established by the

RIAA in 2000 and in 2003 was spun off as an independent entity.

213

The Copyright Act

specifies how royalties collected under section 114 are to be distributed: 50% go to the

recording artist or artists; 2½% go to an agent representing nonfeatured musicians who

perform on sound recordings; and 2½% to an agent representing nonfeatured vocalists

who perform on sound recordings.

214

Section 112 fees are paid by SoundExchange

directly to the sound recording owner.

215

Prior to distributing royalty payments,

SoundExchange deducts the reasonable costs incurred in carrying out its

responsibilities.

216

Notably, the Act does not include record producers in the statutorily defined royalty

split. As a result, record producers must rely on contracts with one of the parties

specified in the statute, often the featured recording artist, in order to receive royalties

from digital performances.

217

To help facilitate these contracts, SoundExchange has

210

See 17 U.S.C. § 114(d)(2)(B)-(C).

211

Id. § 114(d)(2)(B)(i), (d)(2)(C)(i), (j)(13).

212

37 C.F.R. § 380.11 (“Collective is the collection and distribution organization that is designated

by the Copyright Royalty Judges. For the 2011-2015 license period, the Collective is

SoundExchange, Inc.”); see also Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 571 F.3d 69,

91 (D.C. Cir. 2009).

213

Technology Briefing: Internet; Online Royalty Pool Created, N.Y. TIMES, Nov. 29, 2000, at C4; Global

Business Briefs, W

ALL ST. J., Oct. 2, 2003, at B5.

214

17 U.S.C. § 114(g)(2); see About Digital Royalties, SOUNDEXCHANGE,

http://www.soundexchange.com/artist-copyright-owner/digital-royalties/ (last visited Jan. 26,

2015). Royalties collected pursuant to section 112 are not distributed according to this split, and

instead are paid entirely to the record labels. Review of Copyright Royalty Judges

Determination, 73 Fed. Reg. 9143, 9146 (Feb. 19, 2008).

215

17 U.S.C. § 112(e); see also Review of Copyright Royalty Judges Determination, 73 Fed. Reg. at

9146 (explaining that “[r]oyalties collected under section 114 are paid to the performers and the

section 112 license are not paid to performers”).

216

17 U.S.C. § 114(g)(3).

217

See id. § 114(g)(2); About Digital Royalties, SOUNDEXCHANGE; see also Music Licensing Hearings at

14 (statement of Neil Portnow, President/CEO of The Recording Academy).

U.S. Copyright Office Copyright and the Music Marketplace

begun processing direct payments to producers based upon written direction from the

featured artist.

218

Since SoundExchange became an independent entity in 2003, it has distributed over $2

billion to artists and labels.

219

The collective engages in outreach to identify and locate

artists and labels who may be due royalties from the funds that is has collected.

220

Nonetheless, significant amounts of unclaimed funds have accumulated over time.

221

Press accounts indicate that SoundExchange had unclaimed royalties of approximately

$96 million as of the end of 2013.

222

Under the applicable regulations, SoundExchange

retains all undistributed royalties for not less than three years, and thereafter may

release them to offset its administrative costs and/or to engage in ratesetting and

enforcement activities.

223

Interactive/Noninteractive Distinction

The statutory licensing framework applies only to noninteractive (i.e., radio-style)

services; interactive or on-demand services are not covered.

224

The distinction between

interactive and noninteractive services has been the matter of some debate. The statute

provides that an interactive service is one that enables a member of the public to receive

either “a transmission of a program specially created for the recipient,“ or “on request, a

transmission of a particular sound recording, whether or not as part of a program, which

is selected by or on behalf of the recipient.”

225

The statutory definition leads to the question of whether so-called “personalized” or

“custom” music streaming services—services that tailor the music they play to

individual user preferences—transmit programs that are “specially created for the

218

NARAS First Notice Comments at 5.

219

Our Work, SOUNDEXCHANGE, http://www.soundexchange.com/about/our-work/ (last visited

Jan. 26, 2015).

220

SoundExchange Outreach Efforts, SOUNDEXCHANGE, http://www.soundexchange.com/wp-

content/uploads/2014/11/Outreach-Fact-Sheet_11.5.14.pdf (last visited Jan. 26, 2015).

221

See Glenn Peoples, SoundExchange Financials Show Fewer Unclaimed Royalties, Persistent Data

Problems, B

ILLBOARD (Dec. 24, 2014), http://www.billboard.com/articles/business/6415147/

soundexchange-fewer-unclaimed-royalties-data-problems.

222

Id.

223

See, e.g., 37 C.F.R. §§ 380.8, 380.17, 380.27.

224

See 17 U.S.C. §§ 112(e), 114(d)(2)-(3), 114(f). The distinction between interactive and

noninteractive services has been the matter of some debate, and is addressed infra.

225

Id. § 114(j)(7).

U.S. Copyright Office Copyright and the Music Marketplace

recipient.” In Arista Records LLC v. Launch Media, Inc. (“Launch Media”), the Second

Circuit held that one such service that played songs for users based on users’ individual

ratings was not interactive because the service did not displace music sales.

226

Following

the Launch Media decision, personalized music streaming services such as Pandora and

Rdio have obtained statutory licenses as noninteractive services for their public

performance of sound recordings. The CRB-established rates do not currently

distinguish between such customized services and other services that simply transmit

undifferentiated, radio-style programming over the internet.

Ratesetting Standards

Notably, under section 114, the rate standard applicable to “preexisting” satellite radio

and music subscription services (i.e., those services that existed as of July 31, 1998)

differs from that for other services such as internet radio and newer subscription

services.

227

This distinction is a legislative artifact. The section 114 statutory license was

first created with the enactment of the DPRSRA in 1995, and at the time it applied only

to satellite radio and subscription music services. Royalty rates and terms under the

more limited 1995 license were governed by the four-factor policy-oriented standard in

section 801(b)(1) of the Act—that is, the same standard that had long applied to the

section 115 license for musical works.

228

With the enactment of the DMCA in 1998,

Congress expanded the section 114 license to include internet radio, created a new

statutory license for associated ephemeral recordings in section 112, and created a new

ratesetting standard—the “willing buyer/willing seller”—standard. Congress, however,

grandfathered preexisting services (i.e., those that existed before the DMCA’s enactment)

under the old royalty ratesetting standard.

Accordingly, because of the staggered enactment of the section 112 and 114 licenses,

royalty rates for a limited set of older services—Sirius XM, as the only preexisting

satellite service, and Music Choice and Muzak, as the only preexisting subscription

services—are governed by the four-factor standard in section 801(b) of the Act.

229

Meanwhile, for all internet radio and other newer digital music services, and for all

ephemeral recordings regardless of the service, the CRB is to establish rates and terms

“that most clearly represent the rates and terms that would have been negotiated in the

marketplace between a willing buyer and a willing seller.”

230

As explained in Section III,

the continuing propriety of that disparity is a matter of dispute among stakeholders.

226

Launch Media, 578 F.3d 148, 161, 163-64 (2d Cir. 2009).

227

17 U.S.C. § 114(j)(10), (11); see PSS/Satellite II, 78 Fed. Reg. at 23,055.

228

See 17 U.S.C. §§ 114(f)(1), 115(c)(3), 801(b)(1).

229

See id. §§ 114(f)(1), 801(b)(1); PSS/Satellite II, 78 Fed. Reg. at 23,055 & n.5.

230

17 U.S.C. § 114(f)(2)(B). The provision further requires the CRB to consider “whether use of

the service may substitute for or may promote the sales of phonorecords or otherwise may

U.S. Copyright Office Copyright and the Music Marketplace

CRB Ratesetting Proceedings

The statutory rates that apply under the section 112, 114 and 115 licenses are established

by the CRB.

231

CRB ratesetting proceedings for the section 112, 114, and 115 licenses take

place at five-year intervals, and the timing of these proceedings is set by statute.

232

The CRB is composed of three judges, and Congress imposed strict qualifications for

these positions. Each CRB judge is required to have at least seven years of legal

experience.

233

The chief copyright royalty judge must have a minimum of five years of

experience in adjudications, arbitrations, or court trials. As for the other two judges, one

must have significant knowledge of copyright law, and the other must have significant

knowledge of economics.

234

The Register of Copyrights also plays a role in ratesetting,

in that she is responsible for reviewing the CRB’s determinations to ensure they are free

from material legal error, and may also be called upon to address material questions of

substantive law that impact the proceedings.

235

Final ratesetting determinations are

appealable to the United States Court of Appeals for the District of Columbia Circuit.

236

Congress intended the ratesetting process to permit voluntary industry agreements

when possible.

237

For example, Congress provided antitrust exemptions to statutory

licensees and copyright owners of sound recordings, so that they could designate

common agents to collectively negotiate and agree upon royalty rates.

238

The statute also

allows for settlement of ratesetting disputes, and mandates a three-month “voluntary

negotiation period” at the start of each proceeding before the parties submit their

cases.

239

If a settlement is reached among some or all of the participating parties, the Act

interfere with or may enhance the sound recording copyright owner’s other streams of revenue

from its sound recordings,” and “the relative roles of the copyright owner and the transmitting

entity in the copyrighted work and the service made available to the public with respect to

relative creative contribution, technological contribution, capital investment, cost, and risk.” Id.

231

Id. § 801(b)(1).

232

Id. § 804(b).

233

Id. § 802(a).

234

Id.

235

H.R. REP. NO. 108-408, at 26 (2004), reprinted in 2004 U.S.C.C.A.N. 2,332, 2,341; 17 U.S.C.

§ 802(f)(1).

236

17 U.S.C. § 803(d)(1).

237

H.R. REP. NO. 108-408, at 24.

238

17 U.S.C. §§ 112(e)(2), 114(e)(1), 115(c)(3)(B) (These antitrust exemptions are limited to

negotiations addressing rights within the scope of the statutory licenses in sections 112, 114, and

115).

239

See id. § 803(b)(1)-(3).

U.S. Copyright Office Copyright and the Music Marketplace

empowers the CRB to adopt that settlement “as a basis for statutory terms and rates”

that will apply to all parties under the statutory license.

240

Notably, however, the Act

does not require the CRB to immediately act on such settlements. In the past, the CRB

has deferred the adoption of partial settlements until the end of the full ratesetting

proceeding.

241

Absent a settlement, the CRB must proceed to determine the rates and terms of the

statutory license. Although the CRB has some flexibility in organizing its procedures,

many aspects of its proceedings are dictated by the statute.

242

In many instances, these

procedures depart from practices used in ordinary civil litigation. For instance,

participating parties must file their written direct cases in support of their requested

rates—including witness testimony and supporting exhibits—before any discovery has

been taken.

243

Additionally, the statute requires separate direct and rebuttal phases of

ratesetting hearings, effectively resulting in two trials.

244

These procedures cannot be

altered by the CRB even upon stipulation of the parties.

Royalty Rates

In general, the CRB (like the CARP before it) has adopted “per-performance” rates for

internet radio, rather than the percentage-of-revenue rates that are typical in PRO

licenses.

245

That per-stream approach has proven controversial. After the CRB’s

“Webcasting II” decision in 2007, a number of internet radio services and broadcasters

complained that the per-performance rates were unsustainable. These concerns led

Congress to pass legislation giving SoundExchange the authority to negotiate and agree

to alternative royalty schemes that could be binding on all copyright owners and others

240

Id. § 801(b)(7).

241

See SoundExchange First Notice Comments at 8-9; see also Digital Performance Right in Sound

Recordings and Ephemeral Recordings, 76 Fed. Reg. 13,026, 13,027 (Mar. 9, 2011) (adopting

partial settlement entered into in June 2009 as basis for final rates and terms for commercial

webcasters).

242

See 17 U.S.C. § 803(b)(6).

243

Id.

244

Id. § 803(b)(6)(C).

245

See, e.g., 37 C.F.R. § 380.3(a)(1); see also Determination of Reasonable Rates and Terms for the

Digital Performance of Sound Recordings and Ephemeral Recordings, 67 Fed. Reg. 45,240, 45,272

(July 8, 2002). Section 112 rates have been a relatively insignificant part of the CRB’s ratesetting

proceedings, and have been established as a modest percentage of the 114 rate. See e.g., 37 C.F.R.

§ 385.3(c) (establishing ephemeral recording rate to be 5% of the total royalties paid under the

section 112 and 114 licenses).

U.S. Copyright Office Copyright and the Music Marketplace

entitled to royalty payments in lieu of the CRB-set rates.

246

Similar complaints after a

webcasting rate decision under the CARP system had earlier led Congress to enact

analogous legislation in 2002.

247

In the wake of Congress’ actions, SoundExchange reached agreement with a number of

internet radio services, in general adopting royalty rates that were more closely aligned

with the services’ revenues. For example, in 2009, SoundExchange negotiated rates with

large commercial “pureplay” internet radio services (i.e., services like Pandora that only

transmit over the internet).

248

Under that agreement, those services agreed to pay the

greater of 25% of gross revenues or specified per-performance rates.

249

c. Privately Negotiated Licenses

A streaming service that does not fall under the section 112 and 114 licenses—i.e., an

interactive service—must negotiate a license with a record company in order to use the

label’s sound recordings.

250

Since direct licenses are agreed upon at the discretion of the

those that apply under the statutory regime. It is common for a music service seeking a

sound recording license from a label to pay a substantial advance against future

royalties, and sometimes an administrative fee.

251

Other types of consideration may also

be involved. For example, the major labels acquired a reported combined 18% equity

stake in the on-demand streaming service Spotify allegedly based, at least in part, on

their willingness to grant Spotify rights to use their sound recordings on its service.

252

246

See Webcaster Settlement Act of 2008, Pub. L. No. 110-435, 122 Stat. 4974. Congress later

extended the timeframe for negotiations. See Webcaster Settlement Act of 2009, Pub. L. No. 111-

36, 123 Stat. 1926; see also Terry Hart, A Brief History of Webcaster Royalties, C

OPYHYPE (Nov. 29,

2012), http://www.copyhype.com/2012/11/a-brief-history-of-webcaster-royalties.

247

Small Webcaster Settlement Act of 2002, Pub. L. No. 107-321, 116 Stat. 2780.

248

Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 Fed. Reg. 34,796,

34,797 (July 17, 2009); Brian T. Yeh, Statutory Royalty Rates for Digital Performance of Sound

Recordings: Decision of the Copyright Royalty Board, in M

USIC LICENSING RIGHTS AND ROYALTY ISSUES

35, 49 (Thomas O. Tremblay ed., 2011).

249

Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 Fed. Reg. at 34,799-

800; K

OHN at 1498.

250

17 U.S.C. § 114(d)(3)(C).

251

A2IM Second Notice Comments at 5-6; Resnick Second Notice Comments at 2-3; see also

Hannah Karp, Artists Press for Their Share, W

ALL ST. J. (July 21, 2014), http://online.wsj.com

/news/articles/SB20001424052702303833804580023700490515416 (reporting that WMG received an

advance from Google of over $400 million).

252

See Helienne Lindvall, Behind the Music: The Real Reason Why the Major Labels Love Spotify,

UARDIAN (Aug. 17, 2009), http://www.theguardian.com/music/musicblog/2009/aug/17/major-

labels-spotify.

U.S. Copyright Office Copyright and the Music Marketplace

4. Pre-1972 Sound Recordings

When Congress acted in 1971 to grant federal copyright protection to sound recordings,

it extended federal protection prospectively, to recordings created on or after February

15, 1972.

253

Sound recordings fixed before February 15, 1972 are protected by a

patchwork of differing state laws.

254

The disparate treatment of pre-1972 sound recordings under federal versus state law has

given rise to a number of significant policy concerns, including issues about the

preservation and use of older recordings without the benefit of federally recognized

limitations on copyright owners’ exclusive rights.

255

These issues were extensively

addressed in a 2011 Copyright Office report on potential federalization of copyright for

pre-1972 recordings.

256

In its report, the Office surveyed state laws and determined that “the protections that

state law provides for pre-1972 sound recordings are inconsistent and sometimes vague

and difficult to discern.”

257

In addition, the Office’s report concluded that state law did

not provide adequate protection for uses that would be considered fair uses under

federal law.

258

The Office therefore recommended that pre-1972 recordings be brought

within the federal copyright system, which would offer uniform protection to their

owners as well as appropriate exceptions and limitations for the benefit of users.

Since the Office’s report was released, there have been some notable developments in

this area. A significant question has arisen concerning whether state law protection

extends to the public performance of pre-1972 recordings.

259

In the context of their

negotiated deals with record labels, some major services, including YouTube and

Spotify, obtain licenses that cover the use—including the performance—of pre-1972

253

Sound Recording Act of 1971, 85 Stat. at 392.

254

The Copyright Act expressly permits states to continue state law protection for pre-1972 sound

recordings until February 15, 2067, at which time all state protection will be preempted by federal

law and pre-1972 sound recordings will enter the public domain. 17 U.S.C. § 301(c). There is,

however, a significant class of pre-1972 sound recordings that do enjoy federal copyright

protection—sound recordings of foreign origin for which copyright protection was “restored” as

part of the Uruguay Round Agreements Act in 1994. See P

RE-1972 SOUND RECORDINGS REPORT

at 17-20.

255

See PRE-1972 SOUND RECORDINGS REPORT at 64-70.

256

See generally id.

257

Id. at 48.

258

Id. at 86-87.

259

In a 1977 report on public performance rights in sound recordings, the Copyright Office

recognized that Congress had left the decision whether or not to recognize a performance right

for pre-1972 sound recordings to the states. P

ERFORMANCE RIGHTS REPORT at 18.

U.S. Copyright Office Copyright and the Music Marketplace

sound recordings.

260

Some services that use the section 112 and 114 statutory licenses,

such as Music Choice,

261

make payments to SoundExchange for use of pre-1972 works

pursuant to the same statutory rates and terms applicable under sections 112 and 114.

262

Others, including Sirius XM and Spotify, do not pay royalties either to copyright owners

directly or to SoundExchange for performances of pre-1972 sound recordings.

263

Recently, three courts—two in California and one in New York—have held that the

unauthorized public performance of pre-1972 sound recordings violates applicable state

law. In the initial case, a California federal district court ruled that Sirius XM infringed

rights guaranteed to plaintiffs by state statute.

264

A state court in California

subsequently adopted the federal court’s reading of the California statute in a second

action against Sirius XM.

265

Following these decisions, in a third case against Sirius XM,

a federal district court in New York has indicated that the public performance of pre-

1972 sound recordings constitutes common law copyright infringement and unfair

competition under New York law.

266

Notably, the reasoning employed in these

decisions is not expressly limited to digital performances (i.e., internet streaming and

satellite radio); they thus could have potentially broad implications for terrestrial radio

(currently exempt under federal law for the public performance of sound recordings) as

well. In the meantime, similar lawsuits have been filed against other digital providers,

260

Tr. at 161:18-21 (June 5, 2014) (Scott Sellwood, Google/YouTube); Tr. at 152:04-09 (June 5, 2014)

(Steven Marks, RIAA).

261

Music Choice First Notice Comments at 15; Tr. at 190:08-18 (June 24, 2014) (Paul Fakler, Music

Choice).

262

PRE-1972 SOUND RECORDINGS REPORT at 45 n.196; but see PSS/Satellite II, 78 Fed. Reg. at 23,073

(indicating pre-1972 sound recordings are not covered by section 112 and 114 licenses).

263

See Hannah Karp, Turtles and Sirius XM: Not Happy Together, WALL ST. J. (Aug. 3, 2013),

http://blogs.wsj.com/speakeasy/2013/08/03/turtles-and-sirius-xm-not-happy-together. Previously,

Sirius XM did include pre-1972 recordings in its royalty accounting logs to SoundExchange,

which were non-itemized, but stopped in 2011 after SoundExchange asked Sirius XM to start

reporting exactly what it was paying for. See Hannah Karp, Sirius Is Sued Over Music Royalties for

Pre-1972 Recordings, W

ALL ST. J. (Aug. 26, 2013), http://www.wsj.com/articles/

SB10001424127887324591204579037260890310376.

264

See Flo & Eddie Inc. v. Sirius XM (“Flo & Eddie v. Sirius XM CA”), No. 13-cv-5693, 2014 U.S. Dist.

LEXIS 139053, at *22-23 (C.D. Cal. Sept. 22, 2014).

265

Capitol Records, LLC v. Sirius XM, No. BC520981 (Cal. Super. Ct. Oct. 14, 2014) (order regarding

jury instructions), available at http://www.project-72.org/documents/Sirius-XM-Order-Granting-

Jury-Mot.pdf.

266

See Flo & Eddie Inc. v. Sirius XM (“Flo & Eddie v. Sirius XM NY”), No. 13-cv-5784, 2014 U.S. Dist.

LEXIS 166492, at *40-44, *50-52 (S.D.N.Y. Nov. 14, 2014) (denying Sirius XM’s motion for

summary judgment, and asking Sirius XM to show cause why judgment should not be entered

on behalf of plaintiffs), reconsideration denied, 2014 U.S. Dist. LEXIS 174907 (Dec. 12, 2014).

U.S. Copyright Office Copyright and the Music Marketplace

including Pandora, Google, Apple’s Beats service, and Rdio, alleging the unauthorized

use of pre-1972 recordings.

267

Another issue that has been the subject of recent litigation is whether the DMCA safe-

harbor provisions extend to pre-1972 sound recordings.

268

Under section 512(c), an

internet service provider is not liable for “infringement of copyright by reason of the

storage at the direction of a user of” infringing material, provided that the service meets

certain statutory conditions, including take-down requirements.

269

Meanwhile, a

separate provision of the Act, section 301(c), preserves state law protection for pre-1972

sound recordings, stating that “any rights or remedies under the common law or statute

of any state shall not be annulled or limited by this title until February 15, 2067.”

270

In its

2011 report, the Office examined the interplay between these two provisions, and

concluded that the DMCA safe harbors did not apply to pre-1972 sound recordings.

271

Although one decision predating the Office’s report found that the DMCA safe harbors

do apply to pre-1972 sound recordings,

272

more recent decisions have agreed with the

law protections.

273

D. Synchronization Rights

To incorporate music into an audiovisual work—such as a film, video television

program, or video game—the creator of that work must obtain synchronization licenses

from both the owner of the musical work and the owner of the sound recording.

Synchronization (often shortened to “synch”) refers to the use of music in “timed

relation” to visual content.

274

Although the Copyright Act does not refer explicitly to a

267

See Flo & Eddie, Inc. v. Pandora Media, Inc., No. 14-cv-07648 (C.D. Cal. Oct. 2, 2014); Complaint,

Capitol Records, LLC v. Pandora Media, Inc., No. 651195/2014 (N.Y. Sup. Ct. Apr. 17, 2014); see also

Eriq Gardner, Sony, Google, Apple Hit With Lawsuits Over Pre-1972 Music, H

OLLYWOOD REPORTER

(Jan. 23, 2015), http://www.hollywoodreporter.com/thr-esq/sony-google-apple-hit-lawsuits-

766187.

268

See 17 U.S.C. § 512(a)-(d).

269

Id. § 512(c).

270

Id. § 301(c).

271

PRE-1972 SOUND RECORDINGS REPORT at 130-32.

272

Capitol Records, Inc. v. MP3tunes, LLC, 821 F. Supp. 2d 627, 640–42 (S.D.N.Y. 2011). But see

Capitol Records, Inc. v. MP3tunes, LLC, No. 07-cv-9931, 2012 WL 242827, at *1–*2 (S.D.N.Y. Jan. 9,

2012) (citing Copyright Office report and acknowledging that its earlier decision “may involve a

‘substantial ground for difference of opinion’”).

273

Capitol Records, LLC v. Vimeo, LLC, 972 F. Supp. 2d 500, 536-37 (S.D.N.Y. 2013); see also Capitol

Records, LLC v. Vimeo, LLC, 972 F. Supp. 2d 537, 552 (S.D.N.Y. 2013) (denying motion for

reconsideration); Capitol Records, Inc. v. Naxos of America, Inc., 830 N.E.2d 250 (N.Y. 2005).

274

See Steele v. Turner Broad. Sys., Inc., 646 F. Supp. 2d 185, 193 (D. Mass. 2009).

U.S. Copyright Office Copyright and the Music Marketplace

synchronization right, it is generally understood to be an aspect of music owners’

reproduction and/or derivative work rights.

275

The licensing of music for inclusion in audiovisual works, unlike that for other uses,

occurs in the free market for both musical works and sound recordings. The synch

market thus stands as a useful counterpoint to the regulated licensing markets discussed

above. A notable feature of the synch market is the relatively even balance between

royalties paid for the musical works rights and those paid for the sound recording

rights. Musical work and sound recording owners are generally paid equally—50/50—

under individually negotiated synch licenses.

276

The synchronization market for uses in commercial works such as film, television

programs, and video games appears reasonably efficient and flexible. In addition to in-

house resources, a number of intermediaries help handle licensing for those who wish to

use music in a new creative work. Music supervisors working for production

companies facilitate selection, negotiation, and delivery of music for use in audiovisual

productions.

277

Companies such as Greenlight, Dashbox, Cue Songs, and Rumblefish

provide online services that offer different songs for synchronization purposes.

278

An evolving aspect in the music licensing marketplace is the exploitation of music

videos that record labels produce to accompany new releases. Traditionally, any

royalties for these videos were nominal, as they were created largely to promote sales of

275

See, e.g., Buffalo Broad. v. ASCAP, 744 F.2d at 920; Agee, 59 F.3d at 321.

276

See NMPA & HFA First Notice Comments at 16; Tr. at 60:20-22 (June 4, 2014) (Brittany Schaffer,

NMPA/Loeb & Loeb LLP) (“[S]ynchronization licenses are generally divided in terms of income

50/50 between sound recording and the musical composition.”). While parity may be

commonplace for individually negotiated deals, the same does not seem to hold true for broader

licenses with consumer-facing video services such as YouTube. Under an HFA-administered

YouTube license, for example, publishers are paid 15% of YouTube’s net revenue from uploaded

videos that incorporate HFA-controlled publishing rights and embody a commercially released

or distributed sound recording (e.g., a lip sync video), and 50% of revenue from videos that

incorporate HFA-controlled publishing rights but embody a user-created recording (i.e., a cover

recording). NMPA/HFA/YOUTUBE,

LICENSING OFFER, Licensing Offer Overview,

http://www.youtubelicenseoffer.com/docs/notice.pdf (last visited Jan. 29, 2015). YouTube’s

standard contract for independent record labels reportedly allocates 45% of YouTube subscription

music video revenue to labels, as compared to 10% to publishers. Ed Christman, Inside YouTube’s

Controversial Contract with Indies, B

ILLBOARD (June 20, 2014), http://www. billboard.com/

biz/articles/news/digital-and-mobile/6128540/analysis-youtube-indie-labels-contract-

subscription-service?mobile_redirection=false.

277

NMPA & HFA Second Notice Comments at 10-13.

278

Id. at 14-15.

U.S. Copyright Office Copyright and the Music Marketplace

records through music video channels such as MTV.

279

But more recently, as videos

have become among the most common ways in which consumers wish to enjoy music,

280

there is strong interest in developing this market. Record labels seek to license these

professionally created videos—which incorporate musical works—to online providers

such as YouTube and Vevo.

281

In the early 2000s, major record labels and publishers entered into “New Digital Media

Agreements” (“NDMAs”) to allow labels efficiently to obtain licenses from their major

publisher counterparts so they could pursue new digital products and exploit music

videos in online markets.

282

These licensing arrangements, in turn, became a model for a

more recent 2012 agreement between UMG and NMPA that allowed UMG to seek

similar rights from smaller independent publishers on an “opt-in” basis. The licensing

arrangement includes rights for the use of musical works in “MTV-style” videos, live

concert footage, and similar exploitations.

283

Like the major record labels, larger music publishers have entered into direct licensing

relationships with the on-demand video provider YouTube that allow them some

amount of control over the use of user-uploaded videos incorporating their music and

provide for payment of royalties.

284

Following the settlement of infringement litigation

279

See PASSMAN at 177-78 (reflecting the decline of the traditional market for music videos on

platforms such as the MTV television network); K

OHN at 1119 (noting that promotional music

videos have synchronization fees that are “quite nominal, set at an amount intended merely to

cover the administrative costs of preparing the paperwork for the license grant. This is because

the copyright owner stands to substantially benefit from . . . performance royalties resulting from

the exhibition of the music video.”).

280

RIAA Second Notice Comments at 14.

281

Vevo is a joint venture between UMG, SME, the Abu-Dhabi Media Company, and YouTube.

See Alex Pham, YouTube Confirms Vevo Deal, B

ILLBOARD (July 2, 2013), http://www.billboard.com

/biz/articles/news/digital-and-mobile/1568816/youtube-confirms-vevo-deal; see also P

ASSMAN at

259 (for record company-produced videos streamed, “the record labels get about 70% of ad

revenues and/or subscription monies,” and generally pay publishers “in the range of 10% of the

ad revenues (a little under 15% of the 70% that the company gets)”).

282

See RIAA First Notice Comments at 14 n.28; NMPA Second Notice Comments at 33.

283

See NMPA Second Notice Comments at 33; Susan Butler, UMG/NMPA Broker Model License

Agreement, M

USIC CONFIDENTIAL, June 21, 2012; Ed Christman, NMPA Inks Deal With Universal

Music Group Over VEVO, YouTube Videos, B

ILLBOARD (June 19, 2012), http://www.billboard.com

/biz/articles/news/publishing/1093134/nmpa-inks-deal-with-universal-music-group-over-vevo-

youtube. The licensing arrangement excludes rights for synch uses in motion pictures, television,

advertising, video games and other products that are typically individually negotiated by

publishers. Butler, UMG/NMPA Broker Model License Agreement.

284

See YouTube Licensing Offer Overview, YOUTUBE LICENSING OFFER, http://www.youtubelicense

offer.com/notice (last visited Jan. 26, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

by a class of independent music publishers against YouTube in 2011,

285

NMPA and its

licensing subsidiary HFA announced an agreement with YouTube under which smaller

publishers could choose to license their musical works to YouTube by opting in to

prescribed licensing terms. Those who choose to participate in the arrangement grant

YouTube the right to “reproduce, distribute and to prepare derivative works (including

synchronization rights)” for videos posted by YouTube’s users.

286

The license does not,

however, cover the public performance right. Music publishers who opt into the

YouTube deal receive royalties from YouTube and have some ability to manage the use

of their music through HFA, which administers the relationship and can access

YouTube’s content identification tools on behalf of individual publishers.

287

Over 3,000

music publishers have entered into this licensing arrangement with YouTube.

288

Another developing area is the market for so-called “micro-licenses” for music that is

used in videos of modest economic value, such as wedding videos and corporate

presentations. In the past, income received by rightsholders from licensing such uses

might not overcome administrative or other costs. But the market is moving to take

advantage of technological developments—especially online applications—that make

micro-licensing more viable. This includes the aforementioned services like Rumblefish,

but also efforts by NMPA, HFA, and RIAA to license more synchronization rights

through programs that allow individual copyright owners to effectuate small licensing

transactions.

289

E. Licensing Efficiency and Transparency

New digital services face a formidable challenge when attempting to license music. One

study showed that acquiring the necessary rights to offer a marketable digital music

offering

290

requires roughly eighteen months of effort, with some entities never able to

285

See The Football Ass’n Premier League Ltd. v. YouTube, Inc., 633 F. Supp. 2d 159 (S.D.N.Y. 2009).

286

YouTube License Agreement, YOUTUBE LICENSING OFFER, http://www.youtubelicenseoffer.com

/docs/license.pdf (last visited Jan. 26, 2015); see also Susan Butler, Anatomy of a Trade Group License,

USIC CONFIDENTIAL, Sept. 9, 2011.

287

See YouTube Licensing Offer Overview, YOUTUBE LICENSING OFFER, http://www.youtubelicense

offer.com/notice (last visited Jan. 26, 2015).

288

Susan Butler, U.S. Music Licensing: The Rights Holders (Part Two, Conclusion), MUSIC

CONFIDENTIAL, June 5, 2014.

289

Ed Christman, RIAA & NMPA Eyeing Simplified Music Licensing System, Could Unlock ‘Millions’

in New Revenue, B

ILLBOARD (June 13, 2013), http://www.billboard.com/biz/articles/news/record-

labels/1566550/riaa-nmpa-eyeing-simplified-music-licensing-system-could.

290

See RIAA First Notice Comments at 8 (“To be competitive, today’s streaming, cloud and

subscription music services require licenses to the full catalog of songs (and shares thereof)

owned by virtually every music publisher.”); DiMA Second Notice Comments at 16 (“Digital

service providers and record companies do, in fact, need to obtain licenses for millions of songs

U.S. Copyright Office Copyright and the Music Marketplace

successfully negotiate the licenses needed to launch their services.

291

One of the key

reasons for this complexity is the lack of an “authoritative list of rights holders and the

recordings/works they represent.”

292

As discussed in detail in Section III, it is widely acknowledged that reliable, up-to-date

information about copyrighted works is a critical prerequisite for efficient licensing in

the modern music marketplace. Both copyright owners and music services must be able

to uniquely identify particular sound recordings and underlying musical works, along

with the dynamic and often fractured ownership status of these distinct works. In

addition, they need to be able to pair sound recordings with the musical works they

embody. While the industry has made some progress on this front, much remains to be

done.

1. Data Standards

One of the initial considerations regarding management of reliable and up-to-date

standard identifiers. Fortunately, the music industry already employs a variety of

identifiers recognized by the International Organization for Standardization (“ISO”), the

international standard-setting body. The ISO has established two key standards for the

identification of works themselves—the International Standard Music Work Code

(“ISWC”) for musical works, and the International Standard Recording Code (“ISRC”)

for sound recordings.

293

The ISWC represents a unique, permanent, and internationally recognized reference

number for the identification of musical works. The standard was developed by the

International Confederation of Societies of Authors and Composers (“CISAC”). In the

U.S. and Canada, ASCAP is the appointed agency that assigns ISWCs, and works with

in order to meet consumer expectations and be commercially viable.”). Notably, the recently

launched streaming service “The Overflow” offers a limited catalog of “Christian music” and

related genres. Glenn Peoples, David Beside Goliath: New Christian Music Streaming Service The

Overflow Points to a New Strategy, B

ILLBOARD (Jan. 5, 2015), http://www.billboard.com/articles/

business/6429451/overflow-christian-subscription-streaming-music-service; T

HE OVERFLOW,

http://theoverflow.com (last visited Jan. 20, 2015).

291

DAVID TOUVE, MUSIC BUSINESS ASSOCIATION, THE INNOVATION PARADOX: HOW LICENSING

AND

Revenue Streams: Is Spotify the Music Industry’s Friend or Its Foe?, N

EW YORKER (Nov. 24, 2014),

available at http://www.newyorker.com/magazine/2014/11/24/revenue-streams (reporting that

Spotify’s U.S. licensing efforts took two years).

292

TOUVE at 5.

293

See Jessop First Notice Comments at 4.

U.S. Copyright Office Copyright and the Music Marketplace

other representatives of songwriters and publishers to assign ISWCs. As relevant here,

to obtain an ISWC, a publisher must provide the following at a minimum: at least one

original title for the work; all songwriters of the work identified by their Interested

Parties Information (“IPI”) code (discussed below); and whether the work is derived

from an existing work.

294

One significant issue with ISWCs, then, is that they cannot be

assigned until all the songwriters on a musical work are identified. This has the benefit

of assuring that data are complete before an identifier is attached. But it also leads to a

substantial lag time before the ISWC for a particular musical work can be assigned—

unfortunately, this can occur well after a record is released, so that digital files

embodying the individual tracks often will not include ISWCs identifying the

underlying musical works.

295

ASCAP and BMI—which also use proprietary numbering

systems to track works internally—add ISWCs to their databases as those codes are

assigned.

296

The ISRC was created as a unique, permanent, and internationally recognized reference

number for the identification of sound and music video recordings. ISRCs are assigned

at the track—rather than album—level. The ISO has appointed IFPI as the international

ISRC agency. IFPI in turn designates national or regional agencies to manage the

issuance of ISRCs within a specific country or region. The U.S. ISRC agency is RIAA.

RIAA authorizes individual record labels to assign ISRCs to their own recordings.

297

ISRCs are required to be included on digital files provided for the iTunes store and by

many other digital platforms.

There are some shortcomings with the ISRC system. First, there is no single definitive

U.S. database for ISRCs. Instead, each sound recording owner must maintain its own

ISRC records and metadata.

298

Notably, however, SoundExchange is currently

compiling a database of sound recordings performed under the section 112 and 114

294

What is an ISWC, ISWC INTERNATIONAL AGENCY, http://www.iswc.org/en/iswc.html (last

visited Jan. 9, 2015).

295

Tr. at 334:13-337:20 (June 23, 2014) (Andrea Finkelstein, SME; Jacqueline Charlesworth &

Sarang Damle, U.S. Copyright Office); Tr. at 343:2-344:16, 346:17-21 (June 23, 2014) (Lynn

Lummel, ASCAP).

296

ASCAP Second Notice Comments at 11 (“It should be underscored that each work will have

two identifiers—the ISWC as well as the PRO’s own internal Work ID number.”).

297

Obtaining Code, USISRC, http://www.usisrc.org/about/obtaining_code.html (last visited Jan. 25,

2015). RIAA also authorizes “ISRC managers” to assign ISRCs to sound recordings produced by

artists and labels that do not wish to manage their own ISRC assignments. Id.; see also Registration

Fees, USISRC, http://www.usisrc.org/faqs/registration_fees.html (last visited Jan. 25, 2015).

298

Pipeline Project 2014, Belmont University’s Mike Curb College of Music Business and

Entertainment (“Pipeline Project”) Second Notice Comments at 7; see also Types, USISRC,

https://www.usisrc.org/applications/types.html (last visited Jan. 25, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

licenses, and expects to have good identification and ownership information, including

ISRCs, for approximately 14 million recordings in the relatively near term.

299

In addition, in the case of multiple owners, ISRCs do not require a complete list of

owners before assignment of ISRCs. Instead, the ISRC website recommends that

multiple owners simply designate one of the owners to assign the ISRC.

300

The ISO has adopted two other codes to identify the individuals or entities associated

with particular works. The IPI code allows a musical work to be associated with the

various parties that are involved in its creation, marketing, and administration. IPI

codes apply to composers, authors, composer/authors, arrangers, publishers,

administrators, and sub-publishers. The codes are assigned by CISAC and are necessary

to obtain an ISWC.

301

The International Standard Name Identifier (“ISNI”) is akin to the IPI, but while the IPI

scheme is limited to musical works, ISNI is designed to be a global identification system

for creators of all types of copyrighted works, including authors, songwriters, recording

artists, and publishers. The ISNI International Agency was founded in 2010 to develop

the standard, with the goal of eventually replacing existing, disparate identification

standards, including the IPI.

302

ISNIs are assigned by an international network of

registration agencies which rely upon a centralized database to assign and track ISNI

identifiers.

303

Over 8 million identities have been registered so far across multiple classes

of creators and works.

304

At the moment, however, it appears that most ISNIs are being

assigned to literary authors in Europe. It also seems that the number of registration

agencies globally remains limited, with only one agency so far in the United States.

305

299

SoundExchange Second Notice Comments at 4-5.

300

Pipeline Project Second Notice Comments at 7.

301

The IPI System, IPISYSTEM.ORG, http://www.ipisystem.org/SUISASITES/IPI/ipipublic.nsf/

pages/index1 (last visited Jan. 9, 2015).

302

See Jennifer Gatenby & Andrew MacEwan, ISNI: A New System For Name Identification,

NFORMATION STANDARDS QUARTERLY, Summer 2011, at 4-5, available at http://www.niso.org/

publications/isq/2011/v23no3/gatenby; Jennifer Gatenby & Joep Kil, ISNI From Development to

Operations, ISNI, www.isni.org/filedepot_download/58/95.

303

See Gatenby & MacEwan, ISNI: A New System For Name Identification at 4-5.

304

ISNI, http://www.isni.org (last visited Jan. 9, 2015).

305

Pipeline Project Second Notice Comments at 5. Bowker, an affiliate of ProQuest, assigns ISNIs

and tracks the assignment and usage of them. See Bowker Becomes First ISNI Registration Agency in

the U.S., B

OWKER (June 21, 2012), http://www.bowker.com/en-US/aboutus/press_room/2012/

pr_06212012a.shtml; Bowker, Use of ISNI Is Growing Fast Among Authors, Says New Bowker

Analysis, Y

AHOO FINANCE (May 7, 2014), http://finance.yahoo.com/news/isni-growing-fast-

among-authors-144800650.html.

U.S. Copyright Office Copyright and the Music Marketplace

The music industry also employs identifiers not associated with ISO, including

Universal Product Codes (“UPC”). In the music context, a UPC is a set of numbers,

along with a corresponding barcode, that identify a finished music product. A different

UPC is usually necessary for each product or version of a product to distinguish among,

for example, albums, digital singles, or remixed versions of sound recordings. UPCs are

generally required by most major physical retailers, and are now required by the iTunes

store and other digital platforms. Record labels generally acquire UPCs from GS1 US, a

nonprofit group that sets standards for international commerce. UPCs can also be

obtained for free or at a nominal cost from a music distributor such as CD Baby or

TuneCore.

306

In addition to standards that have been or are being developed by international

standard-setting entities, there are also private initiatives for identifying music and its

owners, for example, through the use of digital acoustic fingerprinting and similar

technologies. Examples include Gracenote, Shazam, and The Echo Nest—and perhaps

most notably, YouTube. An acoustic fingerprint is a digital rendering of the acoustical

properties of a particular sound recording, typically one embodied in a digital file such

as an mp3 file. That fingerprint can be stored and searched for matches to other digital

music files.

307

An acoustic fingerprint does not, on its own, provide ownership or

authorship information, but it can be associated with metadata—such as the

standardized identifiers discussed above—that does. One advantage of using digital

fingerprints is that while it is relatively trivial to strip metadata such as ISRCs and

ISWCs from individual music files, it is arguably more difficult to alter a file’s acoustic

fingerprint without changing the quality of the audio.

308

2. Public Data

The U.S. Copyright Office operates a public registration system, which maintains

information that can help to identify musical works, sound recordings, and their

owners. The registration database, however, is not a comprehensive resource for this

purpose. Copyright registration is not mandatory, and so registration records are far

306

How to Get UPC Barcodes for Your Products, WALL ST. J., http://guides.wsj.com/small-

business/starting-a-business/how-to-get-upc-codes-for-your-products-2 (last visited Jan. 9, 2015);

Kristin Thomson, Metadata for Musicians, F

UTURE OF MUSIC COALITION (Nov. 4, 2014),

https://futureofmusic.org/article/article/metadata-musicians.

307

Michael Brown, White Paper: Audio Fingerprinting, MAXIMUM PC (Apr. 3, 2009), http://

www.maximumpc.com/article/features/white_paper_audio_fingerprinting.

308

See Ciumac Sergiu, Duplicate Songs Detector Via Audio Fingerprinting, CODE PROJECT (June 20,

2013), http://www.codeproject.com/Articles/206507/Duplicates-detector-via-audio-fingerprinting.

U.S. Copyright Office Copyright and the Music Marketplace

from complete. In addition, even when a work has been registered, the registration

record is static and thus will not reflect a change in ownership.

309

The database that houses the Office’s registration records is not currently designed to

identify or locate works through the use of standard identifiers, such as those described

above, and such identifiers are not required in the registration process.

310

As a result, a

relatively small number of registration records for musical works and sound recordings

reflect these standard identifiers.

311

Apart from the original registration, some, but not all, copyright owners choose to

record assignments and transfers of ownership through the Copyright Office’s

recordation process. Again, however, such records are far from complete.

312

Nor, due to

the historical separation of the registration and recordation systems, is information

about recorded documents reliably linked to registration records.

313

3. Non-Government Databases

Several entities actively develop and maintain their own discrete databases, many of

which include standard identifiers and other metadata used by the music industry to

track sound recordings and musical works.

As noted above, the RIAA does not keep a central database of sound recordings

associated with ISRCs, and so the most comprehensive U.S. sound recording database is

likely that of SoundExchange. SoundExchange maintains a database of sound

recordings whose uses have been reported to it under the section 112 and 114 licenses,

together with information regarding the associated recording artists and labels. This

309

ROBERT BRAUNEIS, ABRAHAM L. KAMINSTEIN SCHOLAR IN RESIDENCE, U.S. COPYRIGHT

OFFICE, TRANSFORMING RECORDATION AND REENGINEERING AT THE UNITED STATES COPYRIGHT

OFFICE 127-29 (2015) (“BRAUNEIS”), available at http://www.copyright.gov/docs/recordation/.

310

Technological Upgrades to Registration and Recordation Functions, 78 Fed. Reg. 17,722 (Mar.

22, 2013); B

RAUNEIS at 120-21.

311

As of March 2013, for example, ISRCs were associated with only 5,510 (0.03%) of registration

records in the Copyright Office Catalog. B

RAUNEIS at 121.

312

Id. at 110-11.

313

Id. The Office has recently embarked upon public processes to consider possible upgrades to

its systems that could improve the searchability and usability of its records. Such changes might

include, for example, a more robust registration database and a shift to a more user-friendly and

accessible electronic recordation system. See Strategic Plan for Recordation of Documents, 79 Fed.

Reg. 2696 (Jan. 15, 2014); Technological Upgrades to Registration and Recordation Functions, 78

Fed. Reg. 17,722 (Mar. 22, 2013).

U.S. Copyright Office Copyright and the Music Marketplace

database is not currently publicly accessible or available to be used for licensing

purposes.

314

In the realm of musical works, HFA maintains an extensive database of ownership

information and provides an online tool enabling the public to search for songwriter and

publisher data for all songs that have been registered by its member publishers.

315

ASCAP, BMI, and SESAC each also have databases covering the compositions in their

repertoires that are available to the public through their respective websites.

316

addition, ASCAP and BMI—along with the Society of Composers, Authors and Music

Publishers of Canada (“SOCAN”)—are currently collaborating to create a common,

authoritative resource for the musical works represented by the several organizations.

The joint initiative, called MusicMark, will enable publishers to submit a single file for

registration of a song and revise ownership data across the PROs simultaneously, even if

the work was co-written by members of different societies. Each PRO will then integrate

the registration data into its own repertoire database. By enabling PRO members to

more efficiently register musical works through a single interface—including works co-

written by songwriters who are members of different PROs—MusicMark should

provide a more accurate and synchronized view of copyright information for works in

the repertoires of the participating PROs.

317

While each of these databases represents an important and valuable component of the

U.S. music marketplace, because they are separate and separately controlled, they do not

offer a comprehensive licensing resource. The HFA and PRO databases are currently

searchable by the public only manually, on an individual song basis.

318

In addition,

these organizations do not warrant the accuracy or completeness of the information they

provide (perhaps because they are relying upon representations by third parties

concerning authorship and ownership).

319

Finally, it is unclear what effect publisher

314

SoundExchange Second Notice Comments at 5.

315

SONGFILE, http://www.songfile.com (last visited Jan. 25, 2015).

316

ASCAP’s database is called ACE, and BMI’s database is called the BMI Repertoire. See Ace Title

Search, ASCAP, https://www.ascap.com/Home/ace-title-search/index.aspx (last visited Jan. 29,

2015); BMI Repertoire, BMI, http://repertoire.bmi.com/startpage.asp (last visited Jan. 29, 2015).

SESAC also has a database called SESAC Repertory. SESAC Repertory, SESAC,

http://www.sesac.com/Repertory/RepertorySearch.aspx?x=39&y=19 (last visited Jan. 29, 2015).

317

MUSICMARK, http://www.musicmark.com (last visited Jan. 9, 2015).

318

See SONGFILE, http://www.songfile.com (last visited Jan. 25, 2015); Ace Title Search, ASCAP,

https://www.ascap.com/Home/ace-title-search/index.aspx (last visited Jan. 29, 2015); BMI

Repertoire, BMI, http://repertoire.bmi.com/startpage.asp (last visited Jan. 29, 2015); SESAC

Repertory, SESAC, http://www.sesac.com/Repertory/RepertorySearch.aspx?x=39&y=19 (last

visited Jan. 29, 2015).

319

(last visited Jan. 16, 2015); Terms and Conditions of Use, BMI, http://www.bmi.com/legal/entry/

U.S. Copyright Office Copyright and the Music Marketplace

withdrawal from the PROs in favor of direct administration of the relevant rights—

should it come to pass—might have on the efficacy of the PRO databases.

320

4. International Efforts

One example of international efforts to address data information deficiencies is (or was)

the planned Global Repertoire Database (“GRD”) for musical works, to be developed by

a working group spearheaded and funded by music publishers and collective

management organizations in the EU with the support of the World Intellectual

Property Organization (“WIPO”). The GRD was intended to provide a comprehensive

and authoritative source of data about the ownership and administration of musical

works throughout the world. Its supporters anticipated enabling registrations directly

from publishers, composers and collective management organizations, and maintaining

a database of those registrations, with procedures to resolve ownership disputes.

Unfortunately, despite the acknowledged need for solutions in data sharing, support for

the project has waned, and the GRD effort has been put on hold (at least for the time

being).

321

A similar effort remains underway with respect to sound recordings. Phonographic

Performance Ltd (“PPL”), the U.K. collective rights organization, is building a Global

Recordings Database and has so far compiled ownership data on over 5.6 million

recordings released in the United Kingdom. PPL intends to expand its efforts by

terms_and_conditions_of_use (last visited Jan. 25, 2015); SESAC Repertory Terms and Conditions,

SESAC, http://www.sesac.com/Repertory/Terms.aspx (last visited Jan. 25, 2015); Songfile Terms of

Use, S

ONGFILE, http://www.songfile.com/termsofuse.html (last visited Jan. 25, 2015).

320

Notably, in the wake of the Pandora decision—which criticized UMPG’s and Sony/ATV’s

failure to provide catalog data to Pandora—these publishers have recently posted their U.S.

catalogs online. See Press Release, UMPG, Universal Music Publishing Group To Offer Expanded

Access To Song Catalog Data Through Company’s Website (June 27, 2014), available at

http://www.umusicpub.com/#contentRequest=newsdetail&contentLocation=sub&

contentOptions=%26articleID%3D6437%26from%3Dpressreleases; Sony/ATV Makes Entire

Catalogue Available Online, M

USIC BUSINESS WORLDWIDE (JU LY 16, 2014), http://

www.musicbusinessworldwide.com/sonyatv-makes-entire-catalogue-available-online/.

321

PRS ‘disappointed’ at Global Repertoire Database collapse, MUSIC ALLY (June 11, 2014),

http://musically.com/2014/07/11/prs-disappointed-at-global-repertoire-database-collapse; Paul

Resnikoff, Repertoire Database Declared a Global Failure. . . , D

IGITAL MUSIC NEWS (July 10, 2014),

http://www.digitalmusicnews.com/permalink/2014/07/10/global-repertoire-database-declared-

global-failure.

U.S. Copyright Office Copyright and the Music Marketplace

working with major record companies and a range of overseas music licensing

companies to include worldwide data.

322

Another initiative is the U.K.’s Copyright Hub, a web portal connected to a network of

rightsholders that aims to make it easier for people to track down and license

copyrighted works.

323

At present, the Copyright Hub’s functionality is fairly basic,

offering helpful information about copyright law and website links to licensing

organizations. The plan is to change from a signposting tool into an inquiry router that

sends queries to rights managers’ databases, and returns results to Hub users.

324

addition, further development may enable creators to register rights information with

third-party registries linked to the Hub.

325

5. Data Sharing Initiatives

As explained above, data regarding the creation, ownership, and administration of

sound recordings and musical works are currently maintained in discrete and

independently administered databases. A number of initiatives have attempted to

overcome this situation by developing standards related to the communication of

information about works among disparate sources. In particular, these initiatives are

aimed at allowing relevant information and metadata to be efficiently communicated in

a common format so that each party requiring access to the data can understand and

automatically process that data without excessive administrative costs.

One such initiative is Digital Data Exchange (“DDEX”), an industry consortium

consisting of media companies, music licensing entities, digital service providers and

others.

326

DDEX has developed standardized formats in which rights and licensing

information is represented and communicated.

327

For example, DDEX offers digital sales

report standards that are being used in the U.K. to facilitate standardized reporting

322

RICHARD HOOPER & ROS LYNCH, COPYRIGHT WORKS: STREAMLINING COPYRIGHT LICENSING

FOR THE

DIGITAL AGE 3 (2012), available at http://www.copyrighthub.co.uk/Documents/dce-

report-phase2.aspx.

323

THE COPYRIGHT HUB, http://www.copyrighthub.co.uk (last visited Jan. 25, 2015).

324

Id.

325

Id.; Tom Cox, Copyright Hub Pilot Introduced in the UK, INTELLECTUAL PROPERTY BLAWG (Aug.

8, 2013), http://www.intellectualpropertyblawg.com/copyright-law/copyright-hub-pilot-

introduced-in-the-uk; Welcome to the Copyright Hub, W

ORLD INTELLECTUAL PROPERTY REVIEW

(Jan. 9, 2013), http://www.worldipreview.com/article/welcome-to-the-copyright-hub.

326

See DDEX First Notice Comments at 1.

327

See, e.g., MUSIC BUSINESS ASSOCIATION, MUSIC METADATA STYLE GUIDE V2, at 35-38, available

at http://musicbiz.org/wp-content/uploads/2014/08/MusicMetadataStyleGuide-MusicBiz-

FINAL.pdf (last modified Aug. 14, 2014).

U.S. Copyright Office Copyright and the Music Marketplace

between digital music services and the U.K. PRO, PRS for Music.

328

By employing

DDEX messaging standards, entities wishing to transact with multiple companies can

avoid handling multiple formats and delivery methods.

329

A similar initiative is WIPO’s proposed International Music Registry (“IMR”), which

seeks to provide a single access point to the different rights management systems used

around the world. WIPO is currently conducting a series of stakeholder discussions on

the IMR’s scope and structure.

330

328

Press Release, RightsFlow, PRS For Music And Rightsflow Partner On DDEX Standardized

Reporting Initiative (Dec. 13, 2010), http://mi2n.com/print.php3?id=136849.

329

See DDEX First Notice Comments at 1-2.

330

What Copyright Infrastructure is needed to facilitate the Licensing of Copyrighted Works in the Digital

Age: the International Music Registry?, WIPO, http://www.wipo.int/edocs/mdocs/mdocs/en/

wipo_ip_aut_ge_11/wipo_ip_aut_ge_11_t12.doc; The International Music Registry, WIPO,

http://www.wipo.int/imr/en (last visited Jan. 27, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

III. Challenges of the Current System

Perhaps not surprisingly in light of its bewildering array of rights and practices, those

who participated in the study identified many significant obstacles in the current music

licensing marketplace. As detailed below, stakeholders have a wide range of opinions

concerning how best to address them.

Despite the areas of controversy, however, on a somewhat brighter note, study

participants were able to articulate some broad areas of consensus as to the overarching

principles that should guide any revision of our licensing system, as follows: First,

music creators need to be fairly compensated for their efforts.

331

Second, the licensing

process needs to be more efficient, including through bundling of necessary rights.

332

Third, market participants need access to authoritative data to identify and license the

music they use.

333

And fourth, usage and payment information should be transparent

331

See, e.g., Copyright Alliance First Notice Comments at 6 (“We believe all authors and creators

are entitled to fair compensation for their creative work.”); DiMA First Notice Comments at 1

(“DiMA members share the belief that rights owners should be appropriately compensated for

the use of copyrighted works.”); NMPA & HFA First Notice Comments at 31 (noting that “[f]or

music publishers and songwriters, music licensing is only effective if it provides a fair market

royalty for the use of their songs”); SGA First Notice Comments at 3 (identifying “fair market

value compensation for the use of musical works” as an “indispensable need”).

332

See, e.g., Public Knowledge & CFA First Notice Comments at 5 (“Copyright law’s music

licensing provisions can help alleviate . . . bottlenecks and make music licensing more efficient

and fair for all.”); NMPA & HFA First Notice Comments (“Music publishers and songwriters seek

an efficient digital music marketplace. . . .”); RIAA Second Notice Comments at 13 (“Commenters

desire a more efficient licensing process, and focused on blanket licensing as one way to achieve

such efficiency.”); NARAS First Notice Comments at 2 (“The Recording Academy supports a

structure that is fair, simple and efficient for both the licensor and licensee.”); GIPC Second

Notice Comments at 7 (urging the Office to “keep in mind issues of efficiency in the marketplace

so as to facilitate new, licensed services”).

333

See, e.g., Modern Works Music Publishing First Notice Comments at 10 (“Congress should

encourage cooperation among licensors to create technologies that enable licensees to easily

search rights databases.”); Pilot Music Business Services Second Notice Comments at 3 (“[O]ne

centralized database is needed.”); Pipeline Project Second Notice Comments at 18 (“It seems to us

that the statutory license was the twenty-century’s solution to efficiency; however, as we progress

further into the digital age, and as data becomes more useful, we no longer see a great need for a

compulsory license.”); Tr. at 381:04-11 (June 23, 2014) (Waleed Diab, Google/YouTube) (“[T]he

ability to match the information on the sound recording side and the composition side is

absolutely necessary. . . . I think what you are hearing is, there is absolutely a need for a

centralized, standardized, data base, somewhere that services can go and pull that information.”).

U.S. Copyright Office Copyright and the Music Marketplace

and accessible to rights owners.

334

Many of the stakeholders’ comments reflect these

important goals.

A. Compensation and Licensing Disparities

1. Effect of Market Trends on Creator Income

According to the Supreme Court, copyright is intended to increase the “harvest of

knowledge” by assuring creators “a fair return for their labors.”

335

And, as noted above,

industry participants are in general agreement that a well-functioning music licensing

system should adequately compensate those who create and record songs.

336

There is,

however, substantial debate as to whether the current music licensing system is

achieving this goal and, if it is not, the reasons why it is failing creators.

In recent years, many music creators have decried what they see as a precipitous decline

in their income.

337

Understanding the reasons for this apparent decrease requires

knowledge of creators’ various income streams. Songwriters have three primary sources

of income, which they generally share with music publishers: mechanical royalties,

synchronization royalties, and performance royalties. Recording artists receive a share

of revenues from their record labels for the sale of physical and digital albums and

singles, sound recording synchronization royalties, and digital performance royalties. In

334

See, e.g., NSAI Second Notice Comments at 2-3 (expressing concern about advances and

bonuses that “are never paid to the songwriter or composer” and proposing requiring that “such

payments be disclosed by record labels and music publishers”); SGA First Notice Comments at 3

(calling for “complete transparency throughout the licensing, use and payment process”); Kohn

First Notice Comments at 11 (proposing that service providers “be required to provide

transparent access to transaction data in real-time to an independent validation service”); RIAA

Second Notice Comments at 19 (“The major record companies . . . support the idea that where

there is direct licensing, publishers/writers should have a direct audit right with respect to third

parties that use their works.”).

335

Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 545-46 (1985).

336

See RIAA Second Notice Comments at 8 (“[N]obody seems to question the basic premise that

royalty rates should reflect fair market value.”).

337

See, e.g., SGA First Notice Comments at 10 (“[T]he income of the music and recording

industries (and especially of individual music creators and recording artists) have been

diminished, according to reliable estimates, by as much as two-thirds.”); A2IM First Notice

Comments at 10 (noting that “the decline in sound recording revenues” has “had a dramatic

effect on the income of both music labels . . . and their recording artists”); see also Nate Rau,

Nashville’s Musical Middle Class Collapses, T

ENNESSEAN (Jan. 28, 2015), http://

www.tennessean.com/story/entertainment/music/2015/01/04/nashville-musical-middle-class-

collapses-new-dylans/21236245 (observing that industry trends have led to “the collapse of

Nashville’s music middle class”).

U.S. Copyright Office Copyright and the Music Marketplace

addition, recording artists may derive income from live performances, the sale of

merchandise, and other sources.

338

From Physical Formats to Downloads to Streaming a.

In recent years there has been a profound shift in the way music is consumed—from

purchases of physical albums, to downloads of digital singles, to on-demand access

through digital streaming services. These shifts in music consumption patterns have led

to corresponding changes in the relative mix of income streams to copyright owners—in

particular, an increased reliance on performance royalties as compared to reproduction

and distribution royalties.

339

For example, the below charts from the RIAA illustrate the shift from U.S. physical sales

to digital downloads and other sources of revenue from 2004 to 2013. They reflect

remarkable change in less than a decade:

340

338

Under so-called “360” record deals, artists may be required to share a portion of these

additional revenues with their label. See Doug Bouton, Note, The Music Industry in Flux: Are 360

Record Deals the Saving Grace or the Coup de Grace?, 9 V

A. SPORTS & ENT. L.J. 312, 318 (2010).

339

See, e.g., IPAC First Notice Comments at 13 (observing that “the decline in revenue from

physical album sales, to downloads, and ultimately streaming, has drastically reduced the

income opportunities for songwriters and composers”); RIAA Second Notice Comments at 38

(“Songwriters and recording artists have become more dependent on performance revenue, but

that revenue is not sufficient on its own to sustain a livelihood.”).

340

See RIAA, A Fruitful Anniversary for iTunes, MUSIC NOTES BLOG (Apr. 25, 2013),

http://www.riaa.com/blog.php?content_selector=riaa-news-blog&blog_selector=A-Fruitful-

Anniversary-&blog_type=&news_month_filter=4&news_year_filter=2013 (providing 2004 chart);

RIAA First Notice Comments at 51 (providing 2013 chart). Charts reproduced with the

permission of RIAA.

U.S. Copyright Office Copyright and the Music Marketplace

Other data from the RIAA show how streaming, in particular, has boomed in recent

years:

341

NMPA submitted data showing a similar shift.

342

In 2012, NMPA reported that 30% of

U.S. music publisher revenues came from performance royalties, 36% from mechanical

royalties, 28% from synch royalties, and 6% from other sources.

343

Two years later,

NMPA reported that 52% of music publisher revenues came from public performance

royalties, while only 23% came from mechanical royalties, 20% from synch licenses, and

5% from other sources.

344

Other recent sales data show that streaming is continuing its

surge—according to Nielsen, the number of on-demand streams in the United States

grew 54% from 2013 to 2014, with “over 164 billion songs streamed on-demand through

audio and video platforms.”

345

The meteoric rise of streaming has corresponded with a sharp decline in physical and

digital download sales. In 2014, according to Nielsen data, total U.S. album sales (in

both physical and digital formats) fell by 11.2%, and digital download sales decreased

341

RIAA First Notice Comments at 50. Chart reproduced with the permission of RIAA.

342

NMPA Second Notice Comments at 8 (citing sources).

343

Ed Christman, NMPA’s David Israelite to Congress: A More Efficient Mechanical Licensing System,

ILLBOARD (June 13, 2012), http://www.billboard.com/biz/articles/news/publishing/1093490/

nmpasdavid-israelite-to-congress-a-more-efficient-mechanical.

344

Press Release, NMPA, U.S. Music Publishing Industry Valued at $2.2 Billion (June 11, 2014),

available at https://www.nmpa.org/media/showrelease.asp?id=233.

345

NIELSEN, 2014 NIELSEN MUSIC U.S. REPORT, http://www.nielsen.com/content/dam/corporate/

us/en/public%20factsheets/Soundscan/2014-year-end-music-report.pdf.

U.S. Copyright Office Copyright and the Music Marketplace

12.5%, from the year before.

346

Of course, this has been accompanied by a

commensurate drop in mechanical revenues for music publishers and songwriters.

According to NSAI, “[m]any songwriters report a reduction of 60 to 70% or more” in

mechanical royalties, and those royalties “continue to decrease by an alarming rate.”

347

Many believe that in the not-too-distant future, interactive streaming will eclipse digital

downloads to become the dominant means by which consumers access music.

348

Meanwhile, since the late 1990s, there has been a marked decline in industry revenues

overall.

349

RIAA observes that, since 1999, total U.S. recorded music retail revenues have

dropped about 53%.

350

As relative newcomer Spotify summed up the situation, “the

majority of revenue in the industry has evaporated.”

351

What is a matter of some debate among stakeholders, however, is the actual cause of this

striking decline. Some commenters view the reduction in overall revenue and creator

income as the result of ordinary market forces. For example, NAB suggested that

general market factors—including an extended recession, a decline in consumer

discretionary spending, and increased competition for consumers’ shrinking

entertainment budgets—have all contributed to reduced creator income.

352

Other

346

Id.; see also BMI Second Notice Comments at 16 (“[T]he instant availability to the public of the

widest possible choice of recorded music by means of streaming technology has come at the

expense of an accelerating drop-off in the sale of recordings (hard copies and downloads).”).

347

NSAI Second Notice Comments at 6.

348

See IFPI, DIGITAL MUSIC REPORT 2014, at 5, http://www.ifpi.org/downloads/Digital-Music-

Report-2014.pdf (“It is now clear that music streaming and subscription is a mainstream model

for our business.”); ASCAP First Notice Comments at 5-6 (stating that “digital music streaming

services account for an increasingly large portion of music revenues in the U.S.”);

SoundExchange First Notice Comments at 22 (“The music marketplace changed rapidly from one

long dominated by the sale of physical products, to one in which digital downloads are the

primary means of acquiring ownership of copies. Now, it is changing again, and obtaining access

to music through streaming services is ascendant.”).

349

See Michael DeGusta, The REAL Death of the Music Industry, BUSINESS INSIDER (Feb. 18, 2011),

http://www.businessinsider.com/these-charts-explain-the-real-death-of-the-music-industry-2011-

350

RIAA Second Notice Comments at 38.

351

How is Spotify contributing to the music business?, SPOTIFY, http://www.spotifyartists.com/

spotify-explained/#how-is-spotify-contributing-to-the-music-business (last visited Jan. 30, 2015)

(citing global data).

352

NAB First Notice Comments at 9-10.

U.S. Copyright Office Copyright and the Music Marketplace

stakeholders identified industry-specific market trends as a reason for the decline, such

as increased competition driving down the value of synch licenses.

353

Still others attribute at least a good portion of the decrease to the shift from album sales

to individual song purchases.

354

IPAC explained this dynamic in the context of

mechanical royalties:

Dramatically lower album sales is the primary market development that

has led to songwriters reporting significant income declines in recent

years. During the heyday of the CD, album cuts made almost as much

money in mechanical royalties as the most popular single on the CD.

Today’s music industry is seeing significantly fewer full album purchases

and significantly more individual song purchases. As a result,

mechanical royalty income generated from the songs on an album has

declined dramatically, leading to the decline in songwriter income.

355

But IPAC also observed that this trend has been exacerbated by the shift to streaming,

which it claims generates lower royalties for copyright owners,

356

a topic that is

addressed next.

Impact of Music Streaming Models b.

A major area of debate is whether digital music streaming services fairly compensate

rightsholders, particularly music publishers and songwriters. Digital streaming

providers assert that they provide copyright owners with entirely new revenue streams

by paying performance royalties to both sound recording and musical work owners for

353

LaPolt Second Notice Comments at 3 (“[W]hile synchronization licenses are more plentiful

than ever, these licenses are paying lower and lower rates per individual agreement for the

average songwriter.”); NMPA & HFA Second Notice Comments at 8 (noting that “increased

competition has driven down synch fees”); NSAI Second Notice Comments at 6 (“With hundreds

of television networks and online content providers compared to just a few years ago, more

synch licenses are issued, but for a much lower amount per use.”).

354

See CFA & Public Knowledge First Notice Comments at 60-62 (“The leading edge of the shift

was driven by unbundling of albums and the sale of singles. Consumers were no longer forced

to buy songs they did not want in order to get the ones they desired.”); Tr. at 274:01-12 (June 23,

2014) (Paul Fakler, NAB/Music Choice) (“Consumers no longer are forced to buy a bundled

album containing recordings that they don’t want to buy. So there are a lot of factors that have

gone into declines of record sales.”).

355

IPAC Second Notice Comments at 8; see also NSAI Second Notice Comments at 6 (“One major

reason is dramatically less income from album cuts not released as singles. A few years ago a

non-single cut on an album with high sales volume produced greater income for many

songwriters. Today album cuts, with a few rare exceptions, produce very little income.”).

356

IPAC Second Notice Comments at 8-9.

U.S. Copyright Office Copyright and the Music Marketplace

interactive and noninteractive services.

357

With respect to sound recording royalties

specifically, DiMA noted that “[d]igital radio alone paid out $590.4 million in royalties to

artists and rightsholders last year.”

358

royalties.

359

ASCAP and BMI in recent years have both announced record-high

collections and royalty distributions.

360

But notwithstanding the overall increase in

performance royalties, many copyright owners believe that “the downward spiral of

record sales and therefore artist and mechanical royalties has not yet been compensated

by the increase in streaming revenue.”

361

In other words, increases in performance

revenues have not made up for the dramatic decrease in sales.

Significantly, the leading interactive streaming audio service, Spotify, believes that the

“rapid decline [in industry revenue] is not due to a fall in music consumption but to a

shift in music listening behavior towards formats that do not generate significant income

for artists.”

362

ASCAP observed that “technological developments have significantly

increased the use of musical works, yet significantly decreased the income earned by

songwriters.”

363

Songwriters increasingly worry about their income (or lack thereof)

357

DiMA First Notice Comments at 45 (“The substantial royalties paid by digital music services

constitute new revenue streams that were unimagined just a few decades ago.”).

358

Id.

359

RIAA First Notice Comments Ex. A at 1 (“In 2013, strong growth in streaming revenues

contributed to a US music industry that was stable overall at $7 billion for the fourth consecutive

year.”); see also IFPI, D

IGITAL MUSIC REPORT 2014, at 5 (“The US music market continued to

stabilize, growing slightly in trade revenue terms, helped by rising consumer demand for music

streaming services.”).

360

Ben Sisario, Collectors of Royalties for Music Publishers May See Better Results, N.Y. TIMES (Sept.

23, 2013), http://www.nytimes.com/2013/09/23/business/media/collectors-of-royalties-for-music-

publishers-may-see-better-results.html; Press Release, ASCAP Reports Strong Revenues in 2013,

ASCAP (Feb. 12, 2014), http://www.ascap.com/press/2014/0213-2013-financials.aspx.

361

ABKCO First Notice Comments at 5; see also, e.g., NMPA Second Notice Comments at 7 (noting

that “performance royalties are increasing in importance while mechanical income has

diminished. Almost all musical work owners are in agreement that this is the most challenging

aspect of the new digital marketplace”); RIAA Second Notice Comments at 38; ASCAP Second

Notice Comments at 23 (finding that “overall songwriter income has declined because

mechanical right income has dropped by a large margin”).

362

How is Spotify contributing to the music business?, SPOTIFY, http://www.spotifyartists.com/

spotify-explained/#how-is-spotify-contributing-to-the-music-business (last visited Jan. 30, 2015).

Spotify states, however, that its subscription service “aims to regenerate this lost value by

converting music fans from these poorly monetized formats to our paid streaming format, which

produces far more value per listener.” Id.

363

ASCAP First Notice Comments at 39.

U.S. Copyright Office Copyright and the Music Marketplace

from digital streaming services, especially those that they regard as poorly

“monetized”—i.e., ad-supported services that do not require a subscription fee or

generate a large amount of advertising revenue.

A growing number of high-profile songwriter/artists—including Taylor Swift and Thom

Yorke—are leveraging their sound recording rights to remove their music from Spotify,

principally out of concern that Spotify’s free ad-supported tier of service does not fairly

compensate them for their songs.

364

As Swift put it succinctly: “I think that people

should feel that there is a value to what musicians have created, and that’s that.”

365

Songwriter concerns are vividly illustrated by the following tweet by Bette Midler:

Other songwriters have made similarly bleak claims.

366

For instance, the songwriter

Aloe Blacc recently reported:

364

Seabrook, Revenue Streams: Is Spotify the Music Industry’s Friend or Its Foe?; Stuart Dredge, Thom

Yorke Explains Why He Hates Spotify, B

USINESS INSIDER (Oct. 7, 2013), http://www.

businessinsider.com/thom-yorke-explains-why-he-hates-spotify-2013-10; Sasha Bogursky, Taylor

Swift, Garth Brooks and other artists lead the fight against Spotify, F

OX NEWS (Nov. 19, 2014),

http://www.foxnews.com/entertainment/2014/11/19/taylor-swift-garth-brooks-artists-lead-fight-

against-spotify/.

365

Jack Dickey, Taylor Swift on 1989, Spotify, Her Next Tour and Female Role Models, TIME (Nov. 13,

2014), http://time.com/3578249/taylor-swift-interview. In a similar move, GMR recently

demanded that YouTube remove videos from its service containing approximately 20,000 songs

that GMR represents, including the Eagles and Pharrell Williams. Eriq Gardner, Pharrell Williams’

Lawyer to YouTube: Remove Our Songs or Face $1 Billion Lawsuit, H

OLLYWOOD REPORTER (Dec. 22,

2014), http://www.hollywoodreporter.com/thr-esq/pharrell-williams-lawyer-youtube-remove-

759877.

366

See, e.g., Maya Kosoff, Pharell Made Only $2,700 In Songwriter Royalties From 43 Million Plays of

‘Happy’ On Pandora, B

USINESS INSIDER (Dec. 23, 2014), http://www.businessinsider.com/pharrell-

made-only-2700-in-songwriter-royalties-from-43-million-plays-of-happy-on-pandora-2014-12;

David Lowery, My Song Got Played On Pandora 1 Million Times and All I Got Was $16.89, Less Than

U.S. Copyright Office Copyright and the Music Marketplace

Avicii’s release “Wake Me Up!” that I co-wrote and sing, for example, was

the most streamed song in Spotify history and the 13th most played song

on Pandora since its release in 2013, with more than 168 million streams

in the US. And yet, that yielded only $12,359 in Pandora domestic

royalties—which were then split among three songwriters and our

publishers. In return for co-writing a major hit song, I’ve earned less than

$4,000 domestically from the largest digital music service.

367

Notably, songwriters who are not also recording artists with some measure of control

over their recordings typically do not have the option to withdraw their works from

low-paying services, because—due to the combination of the section 115 compulsory

license and the ASCAP and BMI consent decrees—they have no choice other than to

permit the exploitation of their musical works by such providers. And even recording

artists cannot remove their music from noninteractive digital services like Pandora that

qualify for the section 112 and 114 compulsory licenses.

For their part, the digital music services deny that they are the cause of the decline in

songwriter income. These services note that they pay royalties for the public

performance of sound recordings, while terrestrial radio does not, and so the total

royalties they pay to both sound recording and musical work owners must be

considered.

368

Accordingly, Pandora challenged the numbers cited by Midler and Blacc

by publicizing the total amounts paid for all rights to perform the songs, including

sound recording rights—stating that they paid $6,400 in royalties in Midler’s case and

over $250,000 for the plays of “Wake Me Up!”.

369

Digital music services emphasize that they “pay the lion’s share of their revenues over to

rights owners,”

370

and suggest that the songwriter concerns are more accurately traced to

What I Make From a Single T-Shirt Sale!, TRICHORDIST (June 24, 2013), http://thetrichordist. com/

2013/06/24; Doug Gross, Songwriters: Spotify doesn’t pay off . . . unless you’re a Taylor Swift, CNN

(Nov. 13, 2014), http://www.cnn.com/2014/11/12/tech/web/spotify-pay-musicians (noting that the

songwriters of the Bon Jovi hit “Livin’ on a Prayer” split $110 in royalties from Pandora for 6.5

million plays of that song).

367

Aloe Blacc, Streaming Services Need to Pay Songwriters Fairly, WIRED (Nov. 5, 2014),

http://www.wired.com/2014/11/aloe-blacc-pay-songwriters.

368

DiMA First Notice Comments at 46.

369

Andy Gensler, Bette Midler Disparages Pandora, Spotify Over Artist Compensation, BILLBOARD

(Apr. 6, 2014), http://www.billboard.com/biz/articles/news/digital-and-mobile/6039697/bette-

midler-disparages-pandora-spotify-over-artist; Alison Kosik, The puzzling and ‘antiquated’ world of

music royalties, CNN

MONEY (Nov. 17, 2014), http://money.cnn.com/2014/11/17/media/aloe-blacc-

music-royalties.

370

DiMA First Notice Comments at 46; see also Glenn Peoples, Pandora Revenue Up 40 Percent,

Listening Growth Softens, B

ILLBOARD (Oct. 23, 2014), http://www.billboard.com/biz/articles/news/

U.S. Copyright Office Copyright and the Music Marketplace

the division of total royalties between sound recording owners and musical work

owners.

371

From the services’ perspective, total content costs are the relevant

consideration. They assert that they are “agnostic” as to how that total is divided among

various rightsholders.

372

Digital music services and broadcasters also contend that, to the extent individual

creators believe they are not receiving adequate income, the blame might lie with

intermediaries. DiMA stated that “there is little transparency about what happens to the

significant royalties generated from digital music services after they are paid to record

labels, music publishers, and PROs, and processed under the financial terms of

recording artists’ and songwriters’ own private arrangements with rightsowners.”

373

DiMA thus alleged that, rather than being paid out to individual creators, “a significant

portion of the royalties received are retained by [intermediaries] for their own account,

or applied toward the recoupment of advances paid to recording artists and

songwriters.”

374

SAG-AFTRA and AFM, which represent individual artists, expressed a

similar worry that direct licensing deals “can create uncertainty regarding which

benefits of the deal are subject to being shared with Artists at all.” They noted in

particular that “[d]irect license deals increasingly have been reported to include

‘breakage’—advance payments or guaranteed payments in excess of the per-

performance royalty earned under the license—equity shares, promotion or other non-

usage based elements” and that even if such amounts are shared with artists, they “may

digital-and-mobile/6296383/pandora-revenue-up-40-percent-listening-growth-softens (noting

Pandora pays 46.5% of its revenues in royalties to copyright owners).

371

See DiMA First Notice Comments at 11 (“[M]uch of the current debate over rates stems from

disagreement among the labels, publishers and PROs about how to allocate the content owners’

fixed share of the pie, rather than from a notion that service providers are not paying enough, in the

aggregate, for content.”).

372

See Tr. at 193:13-18 (June 4, 2014) (Scott Sellwood, Google/YouTube) (“[I]f there could be some

agreement between publishers and labels as to total content cost, we don’t—we’re very agnostic,

we don’t care whether it’s a performance or a reproduction, tell us how much it costs.”); accord Tr.

at 112:02-113:08 (June 17, 2014) (Vickie Nauman, CrossBorderWorks) (“[Third-party technology

developers’] incentives are not to solve the problems between the publishers and the labels and

the PROs . . . [T]hey want to know that they can come to a simple source and pay for the rights.”).

373

DiMA First Notice Comments at 47.

374

Id.; see also NAB First Notice Comments at 10-12 (“To the extent recording artists have not been

adequately sharing in the new revenue streams from on-demand streaming services . . . it is likely

due to these same creative accounting schemes that the record companies have employed for

decades to underpay artists.”).

U.S. Copyright Office Copyright and the Music Marketplace

be subject to recoupment and less transparent than payments under the compulsory

license.”

375

Non-Performing Songwriters c.

While all creators have been affected by the shift from full-album sales to digital

streaming models, songwriters who are not also performing artists appear to have been

especially hard hit. Unlike songwriter-artists, “pure” songwriters who write works for

others to perform do not have the potential to make up for lost income through touring

or merchandise sales.

According to NSAI, since 2000, the number of full-time songwriters in Nashville has

fallen by 80%.

376

NSAI further observes that two decades ago, there were some 3,000 to

4,000 publishing deals available for songwriters in Nashville; that number has since

dropped to 300 to 400.

377

A publishing deal is crucial, as it “essentially pays a songwriter

an annual salary to write songs.”

378

Without such a deal, it may be impossible for a

songwriter to finance his or her creative efforts. A recent article in The Tennessean

concludes that the result of the shift away from album sales to streaming “has been the

collapse of Nashville’s musical middle class.”

379

Additional Considerations d.

Piracy

In addition, a broad range of stakeholders—with the exception of the CFA and Public

Knowledge

380

—pointed to piracy as a continuing challenge that depresses revenues for

both legal music providers and rightsholders. But piracy was not a significant focus of

discussion. Unlike in the Napster era, stakeholders now seem resigned to this

marketplace condition and the perhaps irreversible impact it has had on the industry.

RIAA—which abandoned its lawsuits against individual file-sharers several years

ago

381

—observed that piracy “certainly is in the background when you talk about

whether digital music services are earning enough money or paying enough money,

375

SAG-AFTRA & AFM Second Notice Comments at 2.

376

Rau, Nashville’s musical middle class collapses.

377

NSAI Second Notice Comments at 6.

378

Rau, Nashville’s musical middle class collapses.

379

Id.

380

CFA & Public Knowledge First Notice Comments at 70 (“In today’s music market, the claim

that piracy is still a problem is contradicted by a great deal of evidence on actual consumer

behavior.”).

381

David Kravets, Copyright Lawsuits Plummet in Aftermath of RIAA Campaign, WIRED (May 18,

2010), http://www.wired.com/2010/05/riaa-bump/.

U.S. Copyright Office Copyright and the Music Marketplace

[and] competing against free remains a problem.”

382

DiMA agreed that “the truth is that

any legitimate digital service right now competes with free.”

383

This sentiment was

echoed by Spotify as well: “We are competing with piracy. It’s a reality that we all face

on every level of the ecosystem. We are all competing with free.”

384

Impact of DMCA Safe Harbors

While piracy may now be considered as an accepted background fact, the same cannot

be said of the DMCA safe harbors, codified in section 512 of the Copyright Act, which

remain highly controversial. Section 512 curtails liability for online providers for

infringing user-posted content provided that they remove such content expeditiously in

response to a copyright owner’s takedown notice.

385

Although the operation of the

DMCA safe harbors is beyond the scope of this study, the Office briefly notes these

DMCA concerns since they were so frequently expressed.

386

Many copyright owners blame the DMCA’s safe harbor regime for allowing digital

providers the opportunity to profit from the unauthorized use of copyrighted music

without paying licensing fees.

387

One composer, Hélène Muddiman, likened the

situation to a company giving away someone else’s CDs at a fairground and making

money by advertising to the people in line.

388

Music publisher Jason Rys contended that

382

Tr. at 98:02-04 (June 24, 2014) (Susan Chertkoff, RIAA); see also RIAA Second Notice Comments

at 6 (“It remains a problem that the legitimate market for licensed musical works must operate in

an environment in which there is also a huge amount of infringing use.”).

383

Tr. at 111:09-11 (June 24, 2014) (Lee Knife, DiMA).

384

Id. at 122:01-04 (James Duffett-Smith, Spotify).

385

17 U.S.C. § 512(c); DMCA § 202(a).

386

In a separate public process, the Department of Commerce’s Internet Policy Task Force—led

by the U.S. Patent and Trademark Office (“USPTO”) and the National Telecommunications and

Information Administration (“NTIA”)—has, in keeping with its July 2013 Green Paper,

established a “multi-stakeholder” dialogue on “improving the operation of the notice and

takedown system for removing infringing content from the Internet under the DMCA.” See

Request for Comments on Department of Commerce Green Paper, Copyright Policy, Creativity,

and Innovation in the Digital Economy, 78 Fed. Reg. 61,337, 61,338 (Oct. 3, 2013); see also

EPARTMENT OF COMMERCE INTERNET POLICY TASK FORCE, COPYRIGHT POLICY, CREATIVITY, AND

INNOVATION IN THE DIGITAL ECONOMY 54 (2013) (“GREEN PAPER”), available at http://www.uspto.

gov/news/publications/copyrightgreenpaper.pdf. The Office will be interested to see the results

of that process.

387

See Lincoff First Notice Comments at 9.

388

Tr. at 136:10-139:05 (June 17, 2014) (Hélène Muddiman, Hollywood Elite Composers); see also

Zoë Keating, What should I do about Youtube?,

ZOEKEATING.TUMBLER.COM (Jan. 22, 2015)

http://zoekeating.tumblr.com/post/108898194009/what-should-i-do-about-youtube (describing

YouTube’s negotiating tactics for licenses covering its new subscription service, which include

U.S. Copyright Office Copyright and the Music Marketplace

“due to the DMCA there’s nothing you can realistically do to stop your songs from

appearing on YouTube.”

389

In addition to complaining that the notice and takedown regime created under the

DMCA results in an impossible game of “whack-a-mole”—since removed content is

frequently reposted, requiring the owner to serve another takedown notice

390

—some

stakeholders also point out that the digital companies’ ability to exploit infringing

content unless and until a notice is sent affords these providers significant added

leverage in licensing negotiations, since content owners must either agree to a license or

devote significant resources to an unending takedown process. This dynamic, in turn, is

thought to have a “depressive effect” on royalty rates.

391

For their part, digital services stress the considerable effort that is required to respond to

submitted to Google, for example, continues to climb and suggests a staggering amount

of online infringement. In 2010, Google received approximately 3 million DMCA

takedown requests; in 2014, that number was 345 million—over 940,000 takedown

requests every day.

392

excluding artists from YouTube’s revenue-sharing program if the artist declines to license their

works for the subscription service).

389

Tr. at 228:08-10 (June 16, 2014) (Jason Rys, Wixen Music Publishing); see also Tr. at 119:10-21

(June 24, 2014) (Dick Huey, Toolshed Inc.) (The DMCA is “a defense that’s used by the largest

tech companies in some cases to avoid direct licensing.”).

390

Audiosocket First Notice Comments at 1; Buckley Second Notice Comments at 4; DotMusic

First Notice Comments at 8.

391

BMI First Notice Comments at 28-29 (“Another explanation [for reduced songwriter, composer

and recording artist income] is the depressive effect of the [DMCA] safe harbors, which shield

Internet service providers . . . from liability for certain user activities.”). To cite a recent example,

Irving Azoff of GMR recently threatened litigation against YouTube for the unauthorized

performances of his clients’ music, explaining that “they are the ones that have been least

cooperative and the company our clients feel are the worst offenders.” Gardner, Pharrell

Williams’ Lawyer to YouTube: Remove Our Songs or Face $1 Billion Lawsuit. GMR’s apparent position

is that if YouTube is able to identify music for the purpose of monetizing it through its Content

ID system, it should also be able to take it down without the service of individual takedown

notices. Id.

392

Joe Mullin, Google Handled 345 Million Copyright Takedowns in 2014, ARSTECHNICA (Jan. 6,

2015), http://arstechnica.com/tech-policy/2015/01/google-handled-345-million-copyright-

takedowns-in-2014; Section 512 of Title 17: Hearing Before the Subcomm. On Courts, Intell. Prop., and

the Internet of the H. Comm. on the Judiciary, 113th Cong. 47 (2014) (Statement of Katherine Oyama,

Sr. Policy Counsel, Google Inc.).

U.S. Copyright Office Copyright and the Music Marketplace

2. Disparate Treatment of Analogous Rights and Uses

Closely tied to the issue of fair compensation is the disparate legal treatment of sound

recordings and musical works, both vis-à-vis each other and across different delivery

platforms. Many participants regard these disparities as unwarranted, and blame them

for the unfairness and inefficiency in the music licensing system.

Inconsistent Ratesetting Standards a.

As explained above, ratesetting standards under the statutory licenses and consent

decrees differ based on the right and use at issue. The CRB establishes rates for

mechanical reproductions of musical works under section 115 under the four-factor,

public policy-oriented standard in section 801(b)(1) of the Copyright Act.

393

Under the

ASCAP and BMI consent decrees, the rate courts establish rates for the public

performance of musical works under a “fair market value” analysis which attempts to

determine the price that a willing buyer and willing seller would agree to in an arm’s

length transaction, but gives substantial weight to antitrust concerns.

394

As also described above, rates for the digital performance of sound recordings under

section 114 are set under different standards, depending on the type of use. Royalty

rates for a limited set of older services—Sirius XM, as the only preexisting satellite

service, and Music Choice and Muzak, as the only preexisting subscription services—are

governed by the same four-factor standard in section 801(b)(1) as mechanical

reproductions of musical works subject to compulsory licensing under section 115.

395

Meanwhile, royalty rates for all internet radio and newer noninteractive subscription

services, and for all ephemeral recordings under section 112 regardless of the type of

service, are established under the so-called “willing buyer/willing seller” standard,

which many believe yields more market-oriented rates than those established under

section 801(b)(1).

396

Most stakeholders seem to acknowledge that it is problematic for the law to impose

differing ratesetting standards, especially for businesses that provide similar services.

397

393

17 U.S.C. § 801(b)(1).

394

ASCAP First Notice Comments at 25 (quoting United States v. BMI (Music Choice II), 316 F.3d

189, 194 (2d Cir. 2003)); ASCAP v. MobiTV, Inc., 681 F.3d 76, 82 (2d Cir. 2012) (stating that “the

rate-setting court must take into account the fact that ASCAP, as a monopolist, exercises market-

distorting power in negotiations for the use of its music”).

395

See 17 U.S.C. §§ 114(f)(1), 801(b)(1).

396

See id. §§ 112(e)(4), 114(f)(2)(B).

397

See, e.g., SoundExchange First Notice Comments at 6-8, 14-16; DiMA First Notice Comments at

40; RIAA First Notice Comments at 30-32; CFA & Public Knowledge First Notice Comments at

23-26; Sirius XM First Notice Comments at 3; NARAS First Notice Comments at 8-9.

U.S. Copyright Office Copyright and the Music Marketplace

As DiMA noted, “[t]he ‘playing field’ regarding ratesetting standards is not level, and

the result is fundamental inequity.”

398

Depending upon whether they wish to see higher

or lower royalty rates, however, these same stakeholders disagree as to which ratesetting

standard should apply.

Music services and public interest groups support adoption of the 801(b)(1) standard for

all statutory licenses, as the standard more likely to produce lower rates. Public

Knowledge and CFA, for example, opined that the 801(b)(1) standard’s balancing of

policy considerations and focus on “creating economic incentives with the ultimate

purpose of encouraging artists and platforms to create new works and bring those

works to market” better aligns with the constitutional purpose of copyright law.

399

Similarly, Sirius XM pointed out that the 801(b)(1) standard provided more “latitude to

consider the enumerated policy factors, including recognizing the ‘relative

contributions’ of technological pioneers, and ensuring that both copyright owners and

users are treated fairly.”

400

It also noted that rates set under this standard have proven

less susceptible to legal challenge or congressional modification.

401

Taking a somewhat different tack, DiMA criticized the willing buyer/willing seller

standard for “requir[ing] judges to set a rate based solely on marketplace benchmarks,”

where “there is very little record evidence of market rates for directly licensed internet

radio services that are not tied to a separate rights grant for additional service types and

functionalities (such as direct licenses for interactive services).”

402

In a related vein,

Spotify noted that under the willing buyer/willing seller standard, benchmark rates

proffered by licensees “are often premised on the agreements entered into by only the

largest of licensors . . . [who] demand ‘Most Favored Nations’ provisions to ensure that

only the highest rates are utilized in the market as opposed to rates that would arise

from true free market negotiations.”

403

In contrast, copyright owners and their representatives support the adoption of the

willing buyer/willing seller standard for all rates across the board. They posit that the

willing buyer/willing seller standard is fairer to music owners and creators, who cannot

opt out of compulsory licenses.

404

BMI stated that it is “simple and self-evident” that

398

DiMA First Notice Comments at 40.

399

CFA & Public Knowledge First Notice Comments at 24-25.

400

Sirius XM First Notice Comments at 13.

401

Id. at 14-15.

402

DiMA First Notice Comments at 36 (emphasis in original).

403

Spotify First Notice Comments at 7.

404

See, e.g., NMPA & HFA First Notice Comments at 8, 15-16; Wixen First Notice Comments at 2;

BMI First Notice Comments at 3; IPAC First Notice Comments at 6; NARAS First Notice

Comments at 1; Tr. at 292:17-20 (June 24, 2014) (Peter Brodsky, Sony/ATV).

U.S. Copyright Office Copyright and the Music Marketplace

creators should be paid at a fair market value rate.

405

Sony/ATV argued that the

801(b)(1) standard “creates artificially deflated rights,” whereas a willing buyer/willing

seller standard “will create fair market value” for copyright owners.

406

In sum,

market rates.

In this regard, a number of copyright owners, including NMPA, ASCAP, BMI, SESAC,

and NARAS, expressed support for the Songwriter Equity Act (“SEA”), proposed

legislation that would change the ratesetting criteria applicable to section 115 from the

801(b)(1) formula to the willing buyer/willing seller standard.

407

Different Ratesetting Bodies b.

Another disparity in the ratesetting process involves the bodies that oversee the

ratesetting proceedings. As discussed above, antitrust consent decrees entered into with

the DOJ by ASCAP and BMI dictate that rates for the public performance of musical

works administered by those PROs be overseen by two judges of the U.S. District Court

for the Southern District of New York that sit as rate courts for the respective consent

decrees. Antitrust concerns play a dominant role in the setting of these rates.

408

contrast, the CRB, which sets rates for the statutory licenses in sections 112, 114, and 115,

does not set rates with antitrust concerns specifically in mind.

409

Instead, the CRB is

designed to be an expert ratesetting body, and to bring to bear “a significant mastery of

economics and marketplace factors as well as considerable knowledge of copyright

law.”

410

A number of stakeholders criticized this divided ratesetting regime. Licensees pointed

out that similar services must petition different bodies to obtain the rights necessary to

engage in a single activity—for example, interactive streaming—leading to increased

costs. When rates are set by different bodies at different times, there is a question as to

405

BMI First Notice Comments at 3.

406

Tr. at 291:04-07 (June 24, 2014) (Peter Brodsky, Sony/ATV).

407

SEA, H.R. 4079, 113th Cong. (2014); see also Songwriter Equity Act Gains Support in Congress,

BMI, http://www.bmi.com/news/entry/songwriter_equity_act_gains_support_in_congress (last

visited Jan. 30, 2015). The SEA would also eliminate the current prohibition in section 114(i) that

prohibits the PRO rate courts from considering sound recording performance rates in

establishing the performance royalties due for musical works.

408

BMI v. DMX, 683 F.3d at 49.

409

Indeed, as noted, Congress provided copyright owners and users with an antitrust exemption

to allow those groups to engage in collective negotiation of rates under the statutory licenses. See

17 U.S.C. §§ 112(e)(2); 114(e)(1), 115(c)(3)(B).

410

H.R. REP. NO. 108-408, at 25; see generally 17 U.S.C. § 802(a).

U.S. Copyright Office Copyright and the Music Marketplace

how to adjust and harmonize the different rates.

411

Others raised fundamental structural

and procedural concerns, such as the propriety of a single district court being tasked

with an ongoing economic responsibility it is not specifically designed to handle, in

comparison to a dedicated tribunal such as the CRB. Bob Kohn, author of a well-known

treatise on music licensing, noted that “rate court proceedings have morphed from the

nature of a fairness hearing for proposed rates to an actual rate setting process—

something which the courts are not equipped to do, especially without jurisdiction over

rate setting for mechanical reproductions of musical works and transmissions of sound

recordings.”

412

Music services fear that fragmented consideration of royalty rates across different

ratesetting bodies can lead to unsustainable results.

413

On this point, a representative

from Spotify stated:

One thing that is absolutely essential, though, is that any rate setting

standard is not looked at in a vacuum. . . . If we have an increase in

publishing rates, for example, that go up beyond, much higher than they

are at the moment, then we could be in a situation where we pay out

more than one hundred percent of our revenue, which is unsustainable.

414

Adding to general concerns about disparate ratesetting processes is the fact that section

114(i) of the Copyright Act prevents the PRO rate courts from considering fees set by the

CRB for digital performance of sound recordings, thus further encouraging

balkanization.

415

Recognizing the shortcomings inherent in the current divided approach, some

participants proposed unifying ratesetting proceedings for music licensing in a single

body, observing that this could also lead to cost savings through the elimination of

duplicative proceedings.

416

411

Tr. at 237:08-21 (June 16, 2014) (Gary R. Greenstein, Wilson Sonsini Goodrich & Rosati).

412

Kohn First Notice Comments at 12.

413

Tr. at 194:05-18 (June 4, 2014) (Scott Sellwood, Google/YouTube) (“[T]he main concern for us

that comes from fragmentation is an incremental creep in total content cost from which we can’t

really sustain the business.”). RIAA, however, likened this concern to “saying if Dunkin’ Donuts

finds out that the price of coffee is going up that now they are going to tell their flour supplier

that they are going to pay less.” Tr. at 98:12-19 (June 24, 2014) (Susan Chertkoff, RIAA).

414

Tr. at 258:01-14 (June 23, 2014) (James Duffett-Smith, Spotify).

415

See NMPA & HFA First Notice Comments at 21-22; BMI First Notice Comments at 12; SESAC

First Notice Comments at 3-5; NARAS First Notice Comments at 4; CTIA First Notice Comments

at 11-12; Tr. at 268:11-269:14 (June 16, 2014) (Timothy A. Cohan, PeerMusic).

416

See FMC First Notice Comments at 4 (suggesting that “it may be more useful to have

arbitration and dispute resolution mechanisms take place under the same court, perhaps the

U.S. Copyright Office Copyright and the Music Marketplace

Pre-1972 Sound Recordings c.

As explained above, legal uncertainties surround state law protection for pre-1972 sound

recordings. This has led digital music providers to take different approaches as to the

payment of royalties for the streaming of pre-1972 sound recordings—some pay, and

some do not. In recent months, questions of whether and how to pay for such uses have

become more immediate due to judicial decisions in California and New York upholding

the right of pre-1972 sound recording owners to collect for performances of their

works—and additional lawsuits are pending.

417

As a general matter, some stakeholders support the full federalization of sound

recordings—i.e., the total inclusion of pre-1972 sound recordings within the federal

a more limited solution that would, for example, provide a payment mechanism under

the section 112 and 114 licenses for noninteractive digital services with a safe harbor

from state liability. In addition, it seems that some parties, particularly digital music

services, might be content to operate without a federal statutory obligation to

compensate pre-1972 sound recording owners. But these stakeholders at least

acknowledge that a federal licensing scheme would be preferable to obtaining direct

licenses under scattered state laws for each sound recording performed, which is no

longer merely a hypothetical scenario.

418

Full Federalization Considerations

“Full federalization” means that the rights and limitations in the Copyright Act

applicable to post-1972 sound recordings, including fair use and the DMCA safe harbors,

would also apply to pre-1972 sound recordings.

419

The Copyright Office’s 2011 report on

the treatment of pre-1972 recordings recommends full federalization (though with

termination rights limited to post-federalization grants). Specifically, the Office

concluded that this approach would “improve the certainty and consistency of copyright

law, will likely encourage more preservation and access activities, and should not result

in any appreciable harm to the economic interests of right holders.“

420

transmission right” encompassing rights of musical works and sound recording owners with

rates set by the CRB).

417

The decisions came down shortly after the close of the record in this study, so it is possible that

stakeholders’ positions as to how our licensing system should handle pre-1972 recordings have

evolved somewhat from their earlier expressed views.

418

See, e.g., DiMA First Notice Comments at 39; Music Choice First Notice Comments at 13-16.

419

See PRE-1972 SOUND RECORDINGS REPORT at ix.

420

Id.

U.S. Copyright Office Copyright and the Music Marketplace

A range of study participants agree with the Office’s view.

421

The prospect of receiving

federally required compensation for pre-1972 exploitations is a driver for some; NARAS,

which largely agreed with the Office’s findings, observed that “older artists, who

contributed greatly to our nation’s cultural legacy, often rely on their recordings as their

sole source of income.”

422

Others consider access to the full spectrum of the Copyright

Act’s rights and limitations to be an important element of any solution. Some creators of

pre-1972 sound recordings, for instance, believe they should have access to federal

termination rights.

423

The Library of Congress (which submitted comments as an

interested party) worried that preserving “millions of historic music and sound

recordings” will be impossible under the current regime, where “pre-1972 recordings

are subject to a variety of disparate state laws and state common law that . . . lack

statutory language to exempt archival copying for preservation purposes.”

424

Others,

including digital music services, feel strongly that the fair use doctrine and DMCA safe

harbor provisions should apply to pre-1972 recordings.

425

Partial Federalization Alternative

Supporters of partial federalization, while open to consideration of a broader solution,

believe that a measure requiring compensation for use of pre-1972 sound recordings

421

See, e.g., Kernochan Center Second Notice Comments at passim; Brigham Young University

8-10; Kohn First Notice Comments at 14-15; Library of Congress First Notice Comments at 2-4;

Public Knowledge Second Notice Comments at 3-5; Tr. at 164:22-165:02 (June 17, 2014) (Eric

Harbeson, Music Library Association).

422

NARAS First Notice Comments at 6.

423

See, e.g., id. at 7-8; Tr. at 154:11-21 (June 5, 2014) (Robert Meitus, Meitus Gelbert Rose LLP); see

also P

RE-1972 SOUND RECORDINGS REPORT at 148-49 (recommending against federal termination

rights to existing grants, but supporting such rights for grants made after effective date of

federalization legislation). With respect to older recordings that fall within the scope of federal

protection, one participant suggested providing authors of sound recordings with the

opportunity to recapture their creations if the record labels stop exploiting the works

commercially. Rinkerman Second Notice Comments at 2. According to the proposal, these rights

would incentivize the continued availability of works and prevent works from languishing in

limbo based on perceptions of marketability. Id. RIAA responded that, since digital music

platforms make it easier to re-issue obscure recordings without the costs associated with physical

distribution, owners do not need additional incentive to exploit commercially viable works under

their control. Tr. at 211:16-212:09 (June 24, 2014) (Susan Chertkof, RIAA).

424

Library of Congress First Notice Comments at 2-3.

425

DiMA First Notice Comments at 39; BYU First Notice Comments at 3. Though DiMA “takes

no view” on the federalization issue, it claims that, to the extent Congress considers incorporating

pre-1972 sound recordings into federal copyright law, such a change should be “absolute and

full.” Tr. at 157:05-18 (June 5, 2014) (Lee Knife, DiMA).

U.S. Copyright Office Copyright and the Music Marketplace

should be enacted in the near term.

426

SoundExchange explained that full federalization

“would raise a number of complicated issues,” but resolving those issues should not

delay providing legacy artists with fair compensation for the use of their works.

427

SoundExchange noted in particular that “the artists who created pre-1972 recordings are

especially dependent on digital revenue streams, because they are often less likely than

more current artists to be able to generate significant income from touring, product sales

and other sources.”

428

For those who support such an approach, obtaining royalties

from digital performance services is of primary importance and partial federalization

should be implemented as a short-term solution while issues of full federalization

continue to be debated.

429

Accordingly, some stakeholders advocated for Congress to simply expand the section

112 and 114 statutory licensing scheme to encompass pre-1972 sound recordings.

According to these parties, bringing pre-1972 sound recordings within the scope of

federal copyright protection in this manner would supply digital music services with an

easy means to offer lawful public performances of those recordings while generating

new sources of revenue for copyright owners.

430

Proponents of partial federalization

have supported Congress’ adoption of the Respecting Senior Performers as Essential

Cultural Treasures Act (otherwise known as the “RESPECT Act”), legislation introduced

in 2014 that would extend the section 112 and 114 licenses to cover pre-1972 recordings

but at the same time provide protection from state law liability for such uses.

431

Terrestrial Radio Exemption d.

As explained above, current law does not require traditional terrestrial—or “over-the-

air”—radio broadcasters to compensate sound recording owners for the public

performance of their recordings.

432

Digital music services, by contrast, must pay both

sound recording owners and musical work owners for performances. The Copyright

Office has long supported a full public performance right for sound recordings.

Recording artists and record labels argue that they are entitled to compensation from

terrestrial radio stations in the same way that songwriters and publishers receive

426

See, e.g., A2IM First Notice Comments at 7-8; ABKCO First Notice Comments at 3; RIAA First

Notice Comments at 32-33; see also NARAS First Notice Comments at 6-8 (supporting partial

federalization as a “stop gap”).

427

SoundExchange First Notice Comments at 11-13.

428

Id. at 11-12.

429

Tr. at 180:11-14 (June 24, 2014) (Casey Rae, FMC).

430

See LaPolt First Notice Comments at 10 (“Recording artists with pre-1972 recordings were

denied an estimated $60 million in royalties in 2013 alone.”).

431

RESPECT Act, H.R. 4772, 113th Cong. (2014).

432

17 U.S.C. §§ 106(4), 106(6), 114(a).

U.S. Copyright Office Copyright and the Music Marketplace

compensation when their songs are played on the radio.

433

They characterize the

terrestrial broadcast exemption as an antiquated “loophole” that causes “glaring

inequity.”

434

They believe that the terrestrial radio industry does not adequately

compensate sound recording owners for helping to generate billions of dollars in annual

advertising revenues for radio services.

435

In this regard, they assert that the

promotional effect of radio airplay on record sales claimed by broadcasters is overstated,

and that sound recording owners should not be forced to forgo compensation in

exchange for the suggestion of promotional value.

436

In addition, copyright owners and digital streaming services together urge that current

law gives terrestrial radio unwarranted competitive advantage over new, innovative

entrants.

437

They note that wireless communications technologies have improved to the

point where digital services are competing directly with traditional terrestrial radio, and

consumers are using the same devices to receive digital and analog transmissions of the

same recordings.

438

As one participant put it, “[t]o me it seems obvious that having an

individual song play or performance on terrestrial radio in your car is fundamentally the

same as a satellite radio Sirius XM play in your car as is a Pandora stream via a wireless

cellphone tower through your car radio.”

439

433

See SoundExchange First Notice Comments at 16 (“The rationale for requiring terrestrial radio

services to pay royalties to artists and copyright owners is the same as for all other platforms.”);

see also, e.g., A2IM First Notice Comments at 8; RIAA First Notice Comments at 30-31; SAG-

AFTRA & AFM First Notice Comments at 6.

434

See, e.g., SAG-AFTRA & AFM First Notice Comments at 6; SoundExchange First Notice

Comments at 16.

435

See A2IM First Notice Comments at 8 (“AM/FM broadcasters make billions selling ads to folks

who tune in for our music while our sound recording creators get nothing.”); NARAS First

Notice Comments at 9 (“Broadcast radio is the only industry in America that bases its business on

using the intellectual property of another without permission or compensation.”); SAG-AFTRA &

AFM First Notice Comments at 6 (“Radio has built a $15 billion industry based primarily on the

exploitation of the creative work of Artists, and should finally be required to fairly compensate

those Artists.”).

436

SoundExchange First Notice Comments at 16; LaPolt First Notice Comments at 6.

437

DiMA First Notice Comments at 40-41; FMC First Notice Comments at 15; RIAA First Notice

Comments at 30-31; Sirius XM First Notice Comments at 2-4; see also Copyright Alliance First

Notice Comments at 2.

438

Sirius XM First Notice Comments at 3-4; see also DiMA First Notice Comments at 40-41 (noting

that “platform distinctions do not make sense in the digital environment where the very same

consumer electronics devices—such as automobile in-dash receivers—are capable of receiving

digital and/or analog transmissions of the same sound recording”).

439

Geo Music Group & George Johnson Music Publ’g at 13.

U.S. Copyright Office Copyright and the Music Marketplace

Predictably, terrestrial broadcasters opposed a new requirement to pay performance

royalties for sound recordings, likening such payments to a “tariff” aimed at subsidizing

the recording industry.

440

They state that the terrestrial broadcast exemption represents

a “reciprocal dynamic” by which “record labels and performing artists profit from the

free exposure and promotion provided by radio airplay, while local radio stations

receive revenues from advertisers that purchase airtime to sell their products and

services.”

441

As evidence of the high promotional value of broadcast radio, they point

out that record companies spend millions of dollars annually trying to persuade radio

stations to play or promote their recordings.

442

Foreign performance royalties are an important consideration in this debate. Virtually

all industrialized nations recognize a more robust sound recording performance right

than the United States; according to proponents of the right, the United States stands out

on the list of countries (among them Iran and North Korea) that do not.

443

Proponents

further point out that the terrestrial radio exemption prevents U.S. sound recording

owners and performers from collecting royalties for foreign radio broadcasts, as most

countries do not require payment of performance royalties to American sound recording

owners due to the lack of reciprocity.

444

According to one estimate, in addition to

forgone domestic royalties, U.S. sound recording owners are deprived of between $70

and $100 million in foreign royalties each year.

445

440

See NAB First Notice Comments at 29.

441

Id. at 28 (citing research indicating the promotional benefit provided to the recording industry

from free radio airplay ranges from $1.5 to $2.4 billion annually).

442

Id.; see also GAO REPORT at 50 (explaining that it is common for record companies to employ

independent promoters to encourage the broadcast industry to perform their songs).

443

See Tr. at 287:11-17 (June 23, 2014) (Blake Morgan, ECR Music Group and #IRespectMusic); The

and the Internet of the H. Comm. on the Judiciary, 113th Cong. 3 (2013) (“The Register’s Call for Updates

Hearing”) (statement of Rep. Melvin L. Watt) (“I think it is time, and the time is long overdue, for

Congress to recognize a performance right in sound recordings . . . . To not do so just prolongs

this longstanding inequity and keeps us out of pace with the international community.”);

SoundExchange First Notice Comments at 16-17 (“The free ride given to terrestrial radio also

makes the U.S. an outlier internationally. At least 75 nations recognize some form of performance

right for terrestrial radio, and the U.S. is the only western industrialized nation that does not.”).

444

See, e.g., RIAA First Notice Comments at 30-31; FMC First Notice Comments at 14-15;

SoundExchange First Notice Comments at 17.

445

See GAO REPORT at 30; see also Mary LaFrance, From Whether to How: The Challenge of

Implementing a Full Public Performance Right in Sound Recordings, 2 H

ARV. J. OF SPORTS & ENT. L.

221, 226 (2011).

U.S. Copyright Office Copyright and the Music Marketplace

For their part, broadcast industry representatives dispute the amount of foreign royalties

sound recording owners are unable to collect due to the lack of a terrestrial performance

right.

446

They posit that U.S. expansion of the performance right would be insufficient to

compel reciprocity, claiming that many foreign nations would continue to balk at paying

royalties unless the U.S. made other conforming changes to its law as well.

447

They also

maintain that many U.S. sound recording owners are already paid when their works are

performed abroad, as foreign collection societies are sometimes willing (or even

compelled) to pay for these uses.

448

B. Government’s Role in Music Licensing

1. PRO Consent Decrees

PROs, publishers, songwriters, and others criticized the ASCAP and BMI consent

decrees on many fronts, arguing that the 75-year-old regime is outdated,

449

that PROs

“can no longer meet the evolving needs of writers, publishers, music licensees and

446

NAB claims that proponents of reconciling international performance right laws have “failed

to substantiate the actual amount of revenue at issue.” NAB Second Notice Comments at 3. It

further asserts that, even if substantiated, “[t]he estimated . . . $70 million dollars in foreign

performance tariffs essentially constitute a rounding error to the major record companies.” NAB

First Notice Comments at 29 n.15.

447

NAB Second Notice Comments at 3 (“[Proponents] also ignore the fact that many of these

foreign regimes are distinctly less generous to sound recordings in other respects. If the U.S. is to

adopt their regimes in one respect, presumably it should do so in others such as a much shorter

term of protection, no protections against anti-circumvention devices, and cultural and other

playlist quotas.”).

448

NAB alleges that “the U.K. adheres to ‘simultaneous publication rules,’ which grant U.S.

sound recordings the same rights as U.K. sound recordings when they are released in both

countries simultaneously,” though no evidence documenting that point was submitted during

the course of this study. NAB Second Notice Comments at 3-4; see also LaFrance, From Whether to

How: The Challenge of Implementing a Full Public Performance Right in Sound Recordings at 225

(explaining that “[i]n practice, many foreign collecting societies . . . have been willing to

reciprocate even before being legally required to do so,” but noting that laws and collecting

society practices are not identical and reciprocal arrangements are generally negotiated on a case-

by-case basis).

449

SGA First Notice Comments at 4; see also BMI First Notice Comments at 3 (noting that “the

decrees must be reviewed with an eye towards modernization”); LaPolt Second Notice

Comments at 15 (explaining that the consent decrees are “restrictive and outdated”); NSAI

Second Notice Comments at 6 (“Non-performing songwriters are threatened with extinction

under . . . the outdated ASCAP and BMI Consent Decree models.”); Wixen First Notice

Comments at 3 (ASCAP and BMI “cannot sufficiently represent songwriters’ interests while

operating under the outdated consent decrees.”).

U.S. Copyright Office Copyright and the Music Marketplace

ultimately the consumers,”

450

and that while the “consent decrees were imposed to

protect against anticompetitive behavior, they are now used to distort and manipulate

the market for the benefit of a handful of powerful digital distribution companies that

are the gatekeepers between music’s creators and those who want to enjoy that

music.”

451

Licensees and others, however, believe that the consent decrees are vital to

preventing anticompetitive conduct by the PROs and major publishers.

452

Some believe

that direct antitrust regulation should be extended even further, to encompass all

licensing of public performances of musical works.

453

As noted above, the DOJ is undertaking a review of the consent decrees to examine their

continued operation and effectiveness, and has solicited public comments, which reflect

many of the same concerns that the Office heard during this study.

454

While the DOJ is

focused on whether the consent decrees can or should be modified as a matter of

antitrust policy, this study examines the impact of the decrees on the music licensing

marketplace in general.

Royalty Rates a.

Under the consent decrees, any party may obtain permission from ASCAP or BMI to

perform musical works upon the submission of an application. If, after the application

450

ASCAP First Notice Comments at 3.

451

NMPA, Comments Submitted in Response to the DOJ’s Antitrust Consent Decree Review at 5

(Aug. 6, 2014), available at http://www.justice.gov/atr/cases/ascapbmi/comments/307900.pdf.

452

See, e.g., CFA & Public Knowledge First Notice Comments at 6 (“[T]he court’s ruling in [In re

Petition of Pandora Media] should put an end to the claims that these antitrust decrees are

‘obsolete’ or ‘outdated.’”); CTIA First Notice Comments at 6 (“[T]he decrees remain essential to

foster competitive market pricing for music performance rights.”); DiMA Second Notice

Comments at 16 (“[The PRO] collectives require government oversight . . . . [T]he natural

behavior for collectives and monopolies is to instinctively leverage their position and attempt to

extract supra-competitive rates and terms.”); FMC First Notice Comments at 6 (Even if the

consent decrees are examined regarding changes in the marketplace, “there would be no

compelling reason to completely eliminate the consent decrees and the important limitations they

place on PROs and publishers from engaging in anticompetitive behavior.”); RMLC First Notice

Comments at 5 (“[T]he pattern of price corrections and other decree enforcement measures

implemented by the federal judiciary following vigorously contested trials and appeals is

testimony to the continuing need for judicial supervision of ASCAP and BMI.”); TMLC First

Notice Comments at 5 (“[The] status quo requires, at the very least, maintaining constraints

protecting music users such as those provided for in the ASCAP and BMI consent decrees.”).

453

See, e.g., CTIA First Notice Comments at 6 (“Due to the nature of the markets, SESAC and the

major publishers also exercise substantial supra-competitive market power. That market power

should also be controlled.”).

454

Antitrust Consent Decree Review, U.S. DOJ, http://www.justice.gov/atr/cases/ascap-bmi-decree-

review.html (last visited Jan. 30, 2015).

U.S. Copyright Office Copyright and the Music Marketplace

is received, the PRO and user cannot agree to the licensing fee, either may apply to the

applicable rate court for a determination of the rate.

In general, licensees expressed more confidence in the rate court process than did the

PROs and copyright owners. For instance, DiMA opined that the “time-tested”

ratesetting standards under the ASCAP and BMI consent decrees have “consistently

established royalty rates that appropriately approximate the ‘fair market value’ of

particular licenses in different contexts.”

455

CTIA observed that the rate courts are

“essential to foster competitive market pricing for music performance rights.”

456

In contrast, PROs and copyright owners stated that the rate courts deflate public

performance royalties below their true market value.

457

Songwriters and publishers

believe that the rate court rates are inequitable to copyright owners, asserting that the

rates they set are “below-market,”

458

“unfair and unrealistic[],”

459

and “artificially

low.”

460

In support of these claims, several stakeholders pointed to the 12 to 1 (some say

14 to 1) discrepancy between the rates set by the CRB for the public performance of

sound recordings and rates set by rate courts for the public performance of musical

works.

461

rate courts is inadequate, with a “lack of clarity regarding what factors the rate court

455

DiMA First Notice Comments at 30.

456

CTIA First Notice Comments at 6.

457

ASCAP First Notice Comments at 26 (Royalty rates are “set at rates below what the evidence

indicates are market levels.”); LaPolt First Notice Comments at 11 (“The compulsory rates set by

the rate courts for licenses are severely lower than their true market value.”); NARAS Second

Notice Comments at 2 (explaining that “recent rate court decisions made pursuant to the Consent

Decrees have resulted in royalty rates for digital music services that are below fair market

value”).

458

BMI First Notice Comments at 9.

459

Council of Music Creators First Notice Comments at 5.

460

SCL First Notice Comments at 12.

461

ASCAP First Notice Comments at 29 n.45, 44 (“This almost 12-to-1 disparity in SoundExchange

and PRO payments is unprecedented in the global music marketplace.” ASCAP elsewhere notes

the ratio may be higher, citing a rate of “12 to 14 times greater.”) (citation omitted); BMI First

Notice Comments at 2 (finding that “recording artists are paid as much as . . . twelve times [what

songwriters and publishers are paid] for the public performance right.”); Music Managers’

Forum (“MMF”) & Featured Artists’ Coalition (“FAC”) Second Notice Comments at 10 (noting

“the price for musical compositions is disadvantaged by a factor of 10 or 12 to 1”); SESAC First

Notice Comments at 4 (referencing a ratio of 13:1); Tr. at 58:19-21 (June 17, 2014) (Gary R.

Greenstein, Wilson Sonsini Goodrich & Rosati) (referencing “14-to-1 fees to the sound recording

U.S. Copyright Office Copyright and the Music Marketplace

should consider . . . and the weight given to those factors.”

462

A number of copyright

owners highlighted section 114(i), which precludes rate court consideration of rates set

for sound recording performances by the CRB, as one reason for below-value PRO

performance rates.

463

In addition, ASCAP objected that “neither ASCAP nor BMI are

free to refuse to license their repertories,” leading to a lack of “competitive market

transactions involving non-compelled sellers” to use as benchmarks for the government-

regulated rate.

464

Rate Court Proceedings b.

A common complaint about the rate court process is that it is expensive and time-

consuming.

465

Netflix observed that “both the substantial costs of litigation and the

business uncertainties inherent in court-determined approximations of what is a

competitive rate impose unnecessary risks and costs on all parties.”

466

Music Choice

complained that “costs are disproportionately burdensome on individual licensees,”

whereas a PRO can spread its costs across copyright owners.

467

But ASCAP observed,

“ASCAP and applicants have collectively expended well in excess of one hundred

million dollars on litigation expenses related to rate court proceedings, much of that

incurred since only 2009.”

468

And attorney Christian Castle objected that “songwriters

did not ask for [the process], cannot escape it, and are forced to participate.”

469

462

ASCAP First Notice Comments at 24; see also SESAC First Notice Comments at 6 (“The consent

decrees . . . offer no definition or guidelines as to what constitutes ‘reasonable.’”).

463

See BMI First Notice Comments at 10 (“We believe that the prohibition against the PRO rate

courts considering the rates set for sound recordings provides in part an explanation for this

unintended disparity.”); see also ABKCO First Notice Comments at 2; ASCAP First Notice

Comments at 29-30.

464

ASCAP First Notice Comments at 25.

465

Id. at 3 (“Rate court proceedings have become extremely time and labor-intensive, costing the

parties millions in litigation expenses.”); BMI First Notice Comments at 8-9 (“Federal rate court

litigation is an exceptionally slow process to set prices to keep up with the rapidly-evolving

digital marketplace, and it is exceedingly expensive for all participants . . . .”); SESAC First Notice

Comments at 7 (“[T]he consent decrees . . . hold[] songwriters and music publisher royalties’

hostage to systematically protracted rate negotiations and expensive, time-consuming rate court

proceedings.”).

466

Netflix First Notice Comments at 6.

467

Music Choice First Notice Comments at 5.

468

ASCAP First Notice Comments at 23.

469

Castle First Notice Comments at 8.

U.S. Copyright Office Copyright and the Music Marketplace

Federal copyright litigation is not only expensive but often lengthy,

470

and the rate courts

are no exception. According to BMI, “a typical rate court case can take many years to be

resolved, which includes the inevitable, potentially multi-year, appeal of the trial court’s

decision.”

471

ASCAP noted that although the consent decree “mandates that

proceedings must be trial-ready within one year of the filing of the initial petition, that

deadline is rarely met.”

472

As music attorney Dina LaPolt commented, the drawn-out

proceedings create the perception that rate courts “cannot keep up with the pace set by

the new digital marketplace.”

473

Interim Fees c.

Other concerns revolve around the fact that the rate for a particular license may not be

established until long after the licensee begins using musical works. The ASCAP and

BMI consent decrees allow music users to perform the PRO’s repertoire upon the mere

filing of an application for a license, without payment of any license fee.

474

As a general

matter, songwriters, publishers, and PROs found it unfair that “the current rate court

system . . . does not provide for an inexpensive, effective way to set interim fees to

compensate creators while the long rate-setting process plays out.”

475

This feature potentially exposes the PROs to gamesmanship by applicants, as “the

burden is on the PRO to make a motion for the imposition of an interim fee—a motion

that is, like the rate court proceeding itself, expensive and time-consuming.”

476

ASCAP elaborated: “Even when an interim fee is paid, it is often at less than full value,”

leading many licensees to make “strategic choices to stay on interim terms until ASCAP

determines it must commence an expensive rate court proceeding.”

477

BMI observed

that “it is not unheard of for an applicant to go out of business before a fee is ever set; as

a result, the PROs (and, of course, in turn, our writers, composers and publishers) are

never compensated for the use of their valuable repertoires.”

478

470

See U. S. COPYRIGHT OFFICE, COPYRIGHT SMALL CLAIMS 24-26 (2013), available at http://copyright.

gov/docs/smallclaims/usco-smallcopyrightclaims.pdf.

471

BMI First Notice Comments at 9.

472

ASCAP First Notice Comments at 22.

473

LaPolt Second Notice Comments at app. 4.

474

ASCAP First Notice Comment at 15; BMI First Notice Comment at 16.

475

BMI First Notice Comments at 3; see also LaPolt Second Notice Comments at app. 4 (noting that

“some licensees employ the rate court as a dilatory tactic to use performance licenses for a time

without having to compensate the PROs.”).

476

BMI First Notice Comments at 16.

477

ASCAP First Notice Comments at 16 & n.22.

478

BMI First Notice Comments at 17; see also ASCAP First Notice Comments at 15-16.

U.S. Copyright Office Copyright and the Music Marketplace

Inconsistent Regulation of PROs d.

Yet another concern is the disparate treatment of entities that license performance rights.

The largest PROs, ASCAP and BMI, are subject to direct government oversight and

regulated pricing under the consent decrees. Other entities that represent significant

catalogs of works, however, such as SESAC and GMR—and major publishers, who may

withdraw from the PROs to license public performance rights directly—are not. Some

contend that the application of different rules to these different players creates an

unwarranted competitive imbalance and opportunities for regulatory arbitrage.

479

Licensees argued that SESAC, for example, has taken advantage of this discrepancy by

engaging in anticompetitive behavior that is prohibited under the consent decrees.

480

noted above, in 2014, RMLC and local television stations each separately sued SESAC

seeking antitrust relief.

481

RMLC argued that SESAC’s practices created “significant

overcharges to radio stations for their uses of SESAC music,”

482

while the local television

stations criticized SESAC for offering only a blanket license and refusing to provide

licensees with repertoire information.

483

These suits were both allowed to proceed after

479

SCL First Notice Comments at 12 (“Commercial entities like SESAC, startups like Azoff MSG

Entertainment [GMR] and a variety of foreign PROs are all competing for the opportunity to the

collect revenues of the music creators but unlike ASCAP and BMI, are not constrained by

antiquated regulations in their efforts to do so.”); Sarah Skates, Global Music Rights Has Growing

Roster, Negotiating Power, M

USIC ROW (Oct. 30, 2014), http://www.musicrow.com/2014/10/global-

music-rights-has-growing-roster-negotiating-power/ (opining that GMR “would likely have more

power than other PROs ASCAP and BMI when negotiating licenses on behalf of its members, due

to the fact that it would not be subject to the same regulatory agreements that govern the more

established organizations”).

480

Music Choice First Notice Comments at 10 (“Given the current state of SESAC’s repertory, the

same facts supporting the continued need for rate court regulation of ASCAP and BMI apply

equally to SESAC, and SESAC should be subject to the same regulation and rate court

supervision as the other PROs.”).

481

See RMLC v. SESAC, 29 F. Supp. 3d 487; Meredith Corp., 1 F. Supp. 3d 180.

482

RMLC First Notice Comments at 2.

483

TMLC First Notice Comments at 14; see also Sirius XM First Notice Comments at 6 (“[SESAC’s]

combination of concentrated ownership and either an unwillingness or inability to be transparent

as to what works are actually in the repertory creates a completely untenable situation.”).

U.S. Copyright Office Copyright and the Music Marketplace

the respective courts denied SESAC’s motions to dismiss.

484

(The parties to the New

York case brought by Meredith Corporation have since agreed to a settlement.

485

)

SESAC disagreed that it has a competitive advantage, instead contending that because

“the industry . . . arose in a culture that assumes that the rates set by the rate courts are

accurate . . . SESAC must also accept those rates.”

486

And copyright owners suggested

that the rates obtained by SESAC and GMR outside of the consent decrees might be

useful as market benchmarks in rate court proceedings.

487

Even within the consent decree framework, there are regulatory discrepancies. The

ASCAP and BMI decrees are administered by different district court judges, and in the

past, there have been periods of time during which the ASCAP and BMI decrees

included significantly different terms.

488

The decrees are still not entirely aligned. For

example, the ASCAP consent decree expressly prohibits ASCAP from licensing any

rights other than public performance rights, while the BMI consent decree contains no

such provision. BMI has expressed the view that it may license other rights under its

consent decree—but has yet to do so.

489

In short, “[n]othing obligates the rate courts to

reach similar results on rate-setting or other issues.”

490

Parties’ Proposals e.

Stakeholders suggested a broad range of solutions to the perceived shortcomings of the

consent decrees governing ASCAP and BMI. The most salient proposals are discussed

below.

484

RMLC v. SESAC, 29 F. Supp. 3d at 500-03 (dismissing price fixing allegation, but allowing

monopoly claim to proceed); Meredith Corp. v. SESAC LLC, No. 09-cv-9177, 2011 WL 856266, at *1

(S.D.N.Y. Mar. 9, 2011) (denying motion to dismiss).

485

Memorandum of Law in Support of Plaintiffs’ Unopposed Motion for Preliminary Approval of

Settlement at 1-2, 5, Meredith Corp., 1 F. Supp. 3d 180 (No. 09-cv-9177). TMLC, which was not a

party to the litigation, was also a signatory to the settlement. Id. at 1 n.2.

486

Tr. at 61:04-11 (June 5, 2014) (Reid Alan Waltz, SESAC); see also Tr. at 58:20-59:03 (June 23, 2014)

(Bill Lee, SESAC) (“Although SESAC is not under a rate court, many rate court decisions do have

a negative impact on SESAC’s ability to modify license agreements. And ultimately it is the

creator, the songwriter, who suffers because of that lack of modernization.”).

487

Production Music Association Second Notice Comments at 5.

488

See generally RICHARD A. EPSTEIN, ANTITRUST CONSENT DECREES: IN THEORY AND PRACTICE

30-39 (2007) (“E

PSTEIN”) (describing differences between the decrees and concluding that the

consent decrees “did not keep ASCAP and BMI in parity at all times, so that differential

regulations governed key portions of their business”).

489

See BMI, Comments on Department of Commerce Green Paper at 4-5.

490

LaPolt First Notice Comments at 12.

U.S. Copyright Office Copyright and the Music Marketplace

Complete or Partial Withdrawal of Rights

As discussed above, the ASCAP and BMI rate courts recently concluded that, under the

consent decrees, music publishers could not withdraw only “new media” (i.e., digital

streaming) rights from the PROs to be licensed directly. As a result, the major

publishers have petitioned the DOJ seeking modification of the consent decrees to allow

for such partial withdrawals. As an alternative plan, major publishers are also

evaluating whether to withdraw their works entirely from the PROs and directly

negotiate public performance rates outside of the consent decree framework.

491

A broad range of stakeholders expressed serious apprehension about complete

publisher withdrawal, predicting “havoc” for the music industry.

492

BMI noted that

complete withdrawal “is potentially catastrophic for smaller publishers and songwriters

who depend on BMI for their livelihood, and for BMI’s hundreds of thousands of

customers who depend on BMI to fulfill their copyright obligations.”

493

Significantly,

Martin Bandier, chairman and CEO of Sony/ATV—one of the major publishers

considering full withdrawal—similarly predicted that if Sony/ATV found it necessary to

withdraw, such an outcome could be “catastrophic” for ASCAP and BMI.

494

Part of the concern is that many administrative costs of running a PRO, such as

negotiating licenses or monitoring radio stations, do not scale downward with a

reduction in revenues; a royalty check costs the same amount to process whether it is

large or small. ASCAP and BMI offset their administrative costs by charging a

commission (roughly 13% of royalties paid in both cases

495

). If major publishers were to

wholly withdraw, the commissions collected by the PROs from the substantial royalties

generated by those catalogs would no longer be available to defray fixed overhead

expenses. As a result, the remaining smaller members of these organizations would

have to shoulder the full administrative costs, likely through significantly higher

commissions.

496

Some commenters questioned whether the PROs would be able to

491

BMI First Notice Comments at 9 (“[M]any knowledgeable publishers . . . have lost confidence

in the efficacy of the rate court process to yield fair market-value. That loss of confidence is

driving publishers to move away from the PROs to avoid this perceived inadequacy.”).

492

See, e.g., Tr. at 23:17-20 (June 17, 2014) (Timothy Cohan, PeerMusic) (“[T]here seems to be

consensus that there would be universal havoc—I think that’s an apt term—if total withdrawals

were to happen.”); Tr. at 30:05-06 (June 17, 2014) (Ashley Irwin, SCL) (stating that publisher

withdrawals would result in “total havoc”).

493

BMI Second Notice Comments at 12.

494

Sisario, Pandora Suit May Upend Century-Old Royalty Plan.

495

A2IM First Notice Comments at 6.

496

See, e.g., ASCAP Second Notice Comments at 3-4 (predicting that “withdrawing publishers will

result in a loss of revenue but without an attendant drop in expenses, which will have to be

U.S. Copyright Office Copyright and the Music Marketplace

continue in operation in such a circumstance.

497

A related concern is that smaller

publishers might face unsustainable increases in licensing and transaction costs as

independent entities,

which could lead to greater consolidation in the music publishing

market.

498

Nonetheless, based on their public statements and comments during this study, at least

two major publishers—UMPG and Sony/ATV—appear poised to withdraw.

499

contrast to Sony/ATV, a representative from UMPG suggested that such an action would

not be the end of the PROs:

We could withdraw tomorrow, and it would be seamless. The landscape

would not change that much. You’re talking about introducing maybe a

few additional players to the licensing process, Universal being one of

them. The societies don’t go away. The societies continue to exist for

those writers and publishers who don’t have the resources that we’re

fortunate enough to have to create infrastructures to deal with licensing

and data management, but there are several solutions, they are all

workable, and they don’t impact the industry or the writer community

negatively.

500

unfairly borne by the remaining ASCAP members”); see also LaPolt First Notice Comments at 12-

13; NARAS Second Notice Comments at 2.

497

Tr. at 9:09-15 (June 5, 2014) (Sam Mosenkis, ASCAP) (“[I]f the revenues . . . decrease[] by 60

percent, clearly operating ratios are going to increase, possibly to a point where we can’t operate

efficiently enough and the whole concept of efficient licensing really drops down the drain.”); see

also NSAI Second Notice Comments at 3 (“If major music publishers directly license and collect

the digital performance royalties easiest to accomplish, it is unlikely that ASCAP and BMI could

continue to exist on what is left, at least with the same efficiency and cost.”).

498

See, e.g., RIAA First Notice Comments at 39 (“[O]utright withdrawal is a possibility that

imperils the whole musical work performance licensing system, and creates a risk that there will

be no practical way to access works, and shares of works, owned by smaller publishers.”).

499

See ASCAP First Notice Comments at 36; Tr. at 37:02-39:08 (June 17, 2014) (David Kokakis,

UMPG); see also Ed Christman, Sony/ATV’s Martin Bandier Repeats Warning to ASCAP, BMI,

ILLBOARD (July 11, 2014), http://www.billboard.com/biz/articles/news/publishing

/6157469/sonyatvs-martin-bandier-repeats-warning-to-ascap-bmi (reporting the details of a letter

sent by Sony/ATV chairman and CEO, Martin Bandier, to Sony/ATV songwriters explaining that

Sony/ATV “may have no alternative but to take all of our rights out of ASCAP and BMI”).

Warner/Chappell did not participate in the study, but previously announced “their intentions to

withdraw their New Media licensing rights from ASCAP” along with other large publishers,

following completion of the June 2012 deal between Pandora and Sony/EMI. In re Pandora, 2013

WL 5211927, at *3.

500

Tr. at 34:18-35:09 (June 17, 2014) (David Kokakis, UMPG).

U.S. Copyright Office Copyright and the Music Marketplace

As an alternative to full withdrawal, partial withdrawal of only new media rights

remains a possibility if the rate courts’ “all in or all out” interpretations of the consent

decrees are reversed on appeal, or the DOJ concludes that it should support a

modification of the decrees to permit it. The PROs and major publishers have advanced

several arguments in favor of partial withdrawal, including their view that it would

allow for fairer, market-based rates for new media uses, that it would allow for greater

flexibility in licensing terms, and that directly negotiated licenses with digital services

would provide a competitive benchmark in ratesetting proceedings governing non-

withdrawing publishers.

501

Licensees, however, stated that even partial withdrawal would undermine the

protection of the consent decrees, and allow the withdrawing publishers to raise rates

through the exercise of unfettered market power.

502

Music Choice claimed that for the

brief period before the ASCAP rate court banned publishers’ partial withdrawal,

“negotiations with Sony and UMPG were oppressive, and resulted in substantially

higher royalty rates.”

503

Others echoed the concern that publishers would engage in

anticompetitive behavior.

504

Songwriters also have significant concerns about publisher withdrawals, specifically as

to how the writer’s share of performance royalties would be administered and paid.

Songwriter contracts typically provide that the writer’s share will be collected and paid

through a PRO,

505

but many of these contracts likely do not contemplate publisher

withdrawal from the PRO.

506

Songwriters fear that, if they instead receive payment

through the publisher, they will be vulnerable to the publisher’s less transparent

501

See, e.g., ASCAP First Notice Comments at 34-35.

502

DiMA First Notice Comments at 32 (“[I]f the antitrust consent decrees were to be modified by

the Department of Justice to accommodate ‘limited’ withdrawals . . . the marketplace for musical

work public performance rights would be significantly compromised.”).

503

Music Choice First Notice Comments at 6.

504

CFA & Public Knowledge First Notice Comments at 5 (“When ASCAP allowed the largest

music publishers to remove their digital rights from the existing contracts, [the publishers]

immediately returned to the abusive practices that had made the consent decree necessary in the

first place.”); Tr. at 52:07-20 (June 24, 2014) (Paul Fakler, Music Choice) (“[After publishers did

partially withdraw] there was evidence from the record, of collusion, strong arm tactics to inflate

the rates, sharing confidential information about negotiations.”).

505

Tr. at 12:07-09 (June 17, 2014) (Garry Schyman, SCL) (“We only receive the writer’s share, and

that’s contractual.”); id. at 24:13-16 (Timothy Cohan, PeerMusic) (“Contracts have mentioned the

writer’s share for a long, long time. They are not consistent. It is often negotiated from contract

to contract.”).

506

Id. at 12:10-14 (Garry Schyman, SCL) (“[V]ery often the contracts do not specify what would

happen if the music is withdrawn from a PRO. It merely says if money is collected through your

society, that you are entitled to receive your share.”).

U.S. Copyright Office Copyright and the Music Marketplace

accounting.

507

FMC suggested that “[a]ny further amendments to the consent decrees

must be done with complete transparency and with a thoughtful consideration of the

impact on songwriters’ leverage and compensation.”

508

The SCL voiced concerns that withdrawal of publishers from U.S. PROs would cause

problems for foreign songwriters, who enter into exclusive arrangements with their local

performing rights society, which in turn authorize U.S. PROs to collect royalties on their

behalf through reciprocal relationships. According to SCL, a U.S. publisher representing

a foreign author’s works under a sub-publishing agreement lacks the authority to

withdraw that writers’ rights from the U.S. PRO.

509

Questioned about this, David

Kokakis of UMPG responded that his company has “considered the international

implications” of withdrawal and does not “currently intend to disrupt that [reciprocity]

model.”

510

Kokakis maintained that “exploitation of foreign works in the United States .

. . would continue to run through the [U.S.] societies.”

511

A number of study participants proposed continued reliance upon the PROs to collect

and administer royalties from licensees even under directly negotiated deals.

512

According to ASCAP, when the major publishers sought to withdraw their new media

rights, ASCAP entered into administration arrangements with the withdrawing

publishers “that enabled the publishers to negotiate directly their digital rights in the

free market, but leave the administration of such deals—receiving fees, processing music

use information data, matching works to interested parties and paying all interested

parties—to ASCAP” for a fee.

513

Such an arrangement might also address the concern

that the withdrawing publishers would “lack the infrastructure to license and collect

performance royalties from bars, restaurants or live performance venues.”

514

507

NARAS Second Notice Comments at 2 (noting that “the rest of the music ecosystem would

lose the efficiency, transparency and stability provided by the PROs.”); CFA & Public Knowledge

First Notice Comments at 18; Tr. at 33:22-34:06 (June 24, 2014) (Rick Carnes, SGA).

508

FMC First Notice Comments at 6-7.

509

Tr. at 31:16-32:04 (June 17, 2014) (Ashley Irwin, SCL) (“[M]y deal with [a foreign PRO] does not

allow a sub-publisher to pull out of an American society. It contravenes my agreement with my

local society. So I don’t know if anybody has considered what the foreign societies will do if the

publishers pull out here that are representing, once again, a reciprocity thing.”).

510

Id. at 34:11-13, 43:09-10 (David Kokakis, UPMG).

511

Id. at 43:17-19.

512

Id. at 38:06-08; BMI Second Notice Comments at 14; see also Tr. at 45:05-10 (June 16, 2014)

(Ashley Irwin, SCL) (proposing bifurcation of public performance right between publishers and

songwriters, so that songwriters could continue to utilize the PROs).

513

ASCAP Second Notice Comment at 6.

514

NSAI Second Notice Comments at 3; see also NMPA & HFA First Notice Comments at 20

(“[Withdrawal] presents a Hobson’s choice for music publishers—either pull out of ASCAP

100

U.S. Copyright Office Copyright and the Music Marketplace

Elimination Versus Expansion of Consent Decrees

During the course of this study, PROs, publishers, and songwriters have advocated for

the sunset of the consent decrees that govern ASCAP and BMI.

515

ASCAP noted the

anomaly that the decrees “continue[] into perpetuity regardless of the increased

competition in the marketplace for licensing the public performance of musical

works.”

516

ASCAP thus views the decrees as “particularly punitive in nature when

viewed in light of current DOJ policy,” which mandates the inclusion of sunset

provisions in standard consent decrees, and under which the DOJ “does not currently

enter into consent decrees with terms longer than ten years.”

517

ASCAP observed that

the marketplace has undergone massive changes since its decree was first adopted in

1941, in that “ASCAP now faces vibrant competition, not only from BMI, but also from

unregulated competitors such as SESAC, foreign PROs, and new market entrants, as

well as from ASCAP’s own publisher and writer members.”

518

BMI similarly points out

that “outmoded views of the purported monopoly power of regulated collectives such

as BMI and ASCAP need to be discarded” as “digital technology has made it easier for

creators and distributors, including unregulated competitors to PROs, to identify

performances and their owners.”

519

In contrast, licensees fear that sunset of the consent decrees would lead not just to

higher, but “supracompetitive,” rates,

520

all the more problematic when licensees have to

pay performance royalties for both sound recordings and musical works. A wide range

of licensees accordingly support the continuation of the consent decrees in essentially

unchanged form.

521

Some participants went further by suggesting that the restrictions imposed by the

consent decrees should be extended to the smaller PROs not currently subject to direct

completely (and take on the difficult burdens of general licensing, e.g., licensing to small music

users such as bars and clubs), or forfeit the right to negotiate agreements at market rates with

digital service providers.”).

515

BMI First Notice Comments at 20; ASCAP First Notice Comments at 4.

516

Id. at 37-38.

517

Id. at 38; see also BMI First Notice Comments at 13 (“In 1979, the [DOJ] determined that

entering into perpetual consent decrees was not in the public interest.”).

518

ASCAP First Notice Comments at 38.

519

BMI First Notice Comments at 25.

520

See, e.g., Music Choice First Notice Comments at 8.

521

See, e.g., DiMA First Notice Comments at 15 (“The processes and protections assured by these

consent decrees serve several important roles that are critical to an efficient, properly functioning

marketplace for these rights . . . .”).

101

U.S. Copyright Office Copyright and the Music Marketplace

supervision. For example, Netflix suggested that all PROs should be subject to the same

ratesetting authority and that PROs could divide the shares of the royalty pools among

themselves.

522

Participants also suggested that withdrawing major publishers should be

subject to oversight and possibly a consent decree to protect against a concentration of

market power.

523

Rate Court Changes

The costs and length of rate court proceeding are frustrating for many. Some—

including ASCAP and BMI—have suggested replacing the rate courts with an

alternative dispute resolution process such as arbitration.

524

IPAC advocated for private

negotiation followed by expedited mediation within prescribed time limits.

525

Licensees, however, were skeptical. NAB stated that “[t]here is no reason to believe that,

without drastic elimination of appropriate and essential discovery and appellate review,

private arbitration will be any more efficient, speedy, or cost-effective than the rate

courts.”

526

FMC voiced a concern that sealed arbitration proceedings would threaten

transparency.

527

Even while acknowledging the rate courts’ flaws, a number of licensees

supported the continuation of that regime, in part due to its procedural safeguards,

including use of the Federal Rules of Civil Procedure and Evidence.

528

As one licensee

opined, “the process of rate-setting under the ASCAP and BMI consent decrees—and the

522

Netflix First Notice Comments at 7.

523

See, e.g., Tr. at 44:22-45:05 (June 5, 2014) (Lee Knife, DiMA) (“I think whenever you have that

type of concentration of market power, that kind of demands some type of oversight, again,

whether or not that’s in the form of a compulsory license, a statutory license, a consent decree, or

something like that.”); Tr. at 52:07-20 (June 24, 2014) (Paul Fakler, Music Choice).

524

ASCAP First Notice Comments at 23-24 (explaining that arbitration would offer a more

definite timeline and would discourage applicants from relying on the license application or

interim licenses); Music Licensing Hearings at 52 (statement of Michael O’Neill, CEO, BMI) (“We

believe that replacing the current rate court with arbitration in New York under the American

Arbitration Association rules would be a faster, less expensive, and a more market-responsive

mechanism for all parties to obtain fair, market-value rate decisions.”); Content Creators

Coalition Second Notice Comments at 2-3.

525

IPAC First Notice Comments at 9.

526

NAB Second Notice Comments at 2; see also Music Choice Second Notice Comments at 8; Tr. at

55:14-16 (June 24, 2014) (Willard Hoyt, TMLC) (“It has been our experience that arbitration is not,

necessarily, less expensive than the rate court.”).

527

Tr. at 88:21-89:05 (June 23, 2014) (Casey Rae, FMC).

528

Music Choice First Notice Comments at 29.

102

U.S. Copyright Office Copyright and the Music Marketplace

hypothetical competitive market standard for rate-setting applied in Rate Court cases—

has worked reasonably well.”

529

PROs and publishers also seek to encourage interim payment of royalties pending the

determination of a final rate. MMF and FAC suggested that “[a]t the very least US

licensees should be required to make an interim payment pending the issuing of a final

license with an agreed tariff.”

530

BMI suggested that rather than invoking the

burdensome rate court process to set an interim rate, the fee could be set at the rate the

licensee paid under its last license or, for new users, the “going industry rate.”

531

Bundled Licensing

There appears to be broad agreement among stakeholders that PROs and other licensing

entities should be able to bundle performance rights with reproduction and distribution

rights, and potentially other rights, to meet the needs of modern music services.

532

NSAI, for example, opined that “[t]he most efficient path to digital service providers

obtaining necessary licenses would be to allow the PRO’s to license and collect

mechanical royalties.”

533

Stakeholders offered conflicting methods by which bundled rights could be made

available. For instance, NMPA suggested that bundled rights could be sought directly

from the music publishers that own and administer the song in question.

534

But the

PROs suggested that their existing structures could be leveraged to facilitate bundled

529

Netflix First Notice Comments at 7-8 (emphasis in original); see also Sirius XM First Notice

Comments at 4 (“In our experience, the ASCAP and BMI consent decrees and the licensing

process that they mandate work relatively well.”); Spotify First Notice Comments at 10

(explaining that “the current system where the PROs are subject to regulation via the consent

decrees is working well”).

530

MMF & FAC Second Notice Comments at 10.

531

BMI First Notice Comments at 17.

532

See ASCAP First Notice Comments at 30; DiMA First Notice Comments at 25 (“A mechanism

should be put in place that enables the collective administration of an ‘all-in,’ combined

mechanical and performance royalty.”); IPAC First Notice Comments at 8 (“A unified licensing

scheme for uses that require both public performance and mechanical licenses could benefit both

licensees and copyright owners.”); RIAA First Notice Comments at 6 (“[T]he marketplace needs

bundles of rights.”); CFA & Public Knowledge First Notice Comments at 28; SCL First Notice

Comments at 12.

533

NSAI Second Notice Comments at 8.

534

NMPA & HFA First Notice Comments at 18; Tr. at 239:15-18 (June 24, 2014) (Jay Rosenthal,

NMPA).

103

U.S. Copyright Office Copyright and the Music Marketplace

licensing on a blanket basis, if only the consent decrees were amended.

535

Several parties

also observed that allowing bundling of rights would align U.S. music licensing with

collective practices in Europe.

536

Elimination of Section 114(i) Prohibition

Songwriters and publishers expressed support for the SEA, which, in addition to

addressing the ratesetting standard under section 115, would amend section 114(i) of the

considering the license fees payable for the public performance of sound recordings

when determining rates to be paid for musical works.

537

Proponents of the SEA stated

that rate courts should be able to consider all relevant evidence

538

and predicted that the

courts, after considering the CRB-established sound recording rates, would increase

performance rates for musical works so that they were more commensurate with rates

paid for sound recordings.

539

Music services opposed amending section 114(i) on the ground that eliminating the

evidentiary exclusion of the CRB-set rate for sound recordings would increase rates for

musical works without a proportional decrease of rates for sound recordings, leading to

an overall escalation of total content costs to potentially unsustainable levels.

540

Some

noted that those who now support the elimination of that provision are the same parties

who sought it in the first place, as the provision was enacted out of copyright owners’

535

ASCAP First Notice Comments at 30-34; BMI First Notice Comments at 15-16; Tr. at 273:13-15

(June 24, 2014) (Richard Reimer, ASCAP); Tr. at 38:03-04 (June 24, 2014) (Stuart Rosen, BMI).

536

BMI First Notice Comments at 6; Tr. at 32:20-33:01 (June 4, 2014) (Dan Coleman, Modern Music

Works Publishing); Tr. at 273:07-12 (June 24, 2014) (Richard Reimer, ASCAP).

537

SEA, H.R. 4079 § 2.

538

See, e.g., NMPA & HFA First Notice Comments at 21-22; BMI First Notice Comments at 18-19;

SESAC First Notice Comments at 3-4; NARAS First Notice Comments at 4; Geo Music Group &

George Johnson Music Publ’g First Notice Comments at 16; Tr. at 198:09-17 (June 5, 2014) (Daniel

Gervais, Vanderbilt University Law School) (noting “when you read in the Copyright Royalty

Board determination that the value of a sound recording is unrelated to the value of the song . . .

[t]o me, that complete disconnect is not warranted”).

539

See, e.g., BMI First Notice Comments at 18; ASCAP First Notice Comments at 27-30; SESAC

First Notice Comments at 5; NMPA & HFA First Notice Comments at 26-28; NARAS First Notice

Comments at 4; LaPolt First Notice Comments at 12.

540

See e.g., CTIA First Notice Comments at 12 (noting that “publishers want it both ways—they

want the higher sound recording fees to be relevant in setting their fees, but they want to protect

their affiliate record companies and ensure that sound recording fees are not dragged down by

much lower musical works fees”); Music Choice First Notice Comments at 34 (“The simple fact is

that the disparity in rates between the Section 114 license and the PRO licenses does not prove

that the PRO rates are too low; it proves that the Section 114 rates are too high.”).

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U.S. Copyright Office Copyright and the Music Marketplace

concern that consideration of sound recording license fees might depress musical work

rates.

541

Opponents further observed that music publishers themselves previously

testified before the CRB that it was economically logical and necessary to maintain a

distinction between musical work and sound recording rates, and are now simply

questioning their prior judgment in light of the higher sound recording rates set by the

CRB.

542

2. Mechanical Rights Licensing

Many parties have called for either the complete elimination or modernization of section

115, citing issues such as the administrative challenges of the license, the inaccuracy and

slowness of the ratesetting process, and frustration with government-mandated rates.

Royalty Rates and Standard a.

A broad range of parties expressed dissatisfaction with royalty rates established by the

CRB. Music publishers and songwriters argue that the rates determined under the

section 801(b)(1) standard applicable to section 115 are depressed as a result of the

government ratesetting process and do not reflect the fair market value of musical

works. While advocating for the elimination of the compulsory license, these parties

also assert that at the very least mechanical rates should be established under the more

market-oriented willing buyer/willing seller standard that applies under the section 112

and 114 licenses.

543

Musical work owners explain that section 115 acts as a ceiling that does not allow them

to seek higher royalties through voluntary negotiations.

544

Many point to the fact that

the current 9.1-cent rate for phonorecords has not kept pace with inflation, since the

541

CTIA First Notice Comments at 11-12.; Tr. at 254:06-19 (June 16, 2014) (Russell Hauth,

NRBMLC) (”Now that the sound recording industry has got a great rate, the musical works want

the same, and they want to not be separated any longer. You know, I’ve got to say that’s fairly

hypocritical.”).

542

See, e.g., NRBMLC First Notice Comments at 11-12; Tr. at 254:06-19 (June 16, 2014) (Russell

Hauth, NRBMLC); Tr. at 76:22-79:07 (June 24, 2014) (Bruce Rich, RMLC); Tr. at 85:13-86:07 (June

24, 2014) (Paul Fakler, NAB).

543

See ABKCO First Notice Comments at 1; BMI First Notice Comments at 5; Gear Publ’g Co. &

Lisa Thomas Music Servs., LLC First Notice Comments at 4; IPAC First Notice Comments at 7; see

also Tr. at 119:01-09 (June 17, 2014) (John Rudolph, Music Analytics); Tr. at 33:20-34:02 (June 23,

2014) (Jay Rosenthal, NMPA).

544

See Carapetyan Second Notice Comments at 1 (“The reality is it is rarely used in standard

industry practice, serving only as a framework for negotiating terms of direct licenses, but acting

as a de facto ceiling for royalty rates nonetheless.”); Geo Music Group & George Johnson Music

Publ’g First Notice Comments at 10 (opining that “the statutory rate is still a cap and as non-effective

as it gets.”) (emphasis in original); NSAI Second Notice Comments at 7.

105

U.S. Copyright Office Copyright and the Music Marketplace

original 2-cent rate set by statute in 1909 would be 51 cents today if adjusted for

inflation.

545

In addition, a number of participants noted a 9 to 1 inequity of rates

between sound recordings and musical works for downloads and CDs: when a song is

downloaded from iTunes for $1.29, approximately 80 cents is allocated for the sound

recording, but only 9.1 cents goes to the musical work.

546

By way of contrast, rates for

privately negotiated synchronization licenses—which are not subject to government

oversight—generally reflect a 1 to 1 ratio between musical works and sound

recordings.

547

Digital music services, however, disagree, contending that the statutory rates set under

the section 801(b)(1) standard reflect fair market value, or higher.

548

According to them,

the statutory rates provide a “useful benchmark for direct deals” by providing a

framework by which to negotiate such deals.

549

They contend that the willing

buyer/willing seller standard is faulty at best since “the ‘market’ the standard seeks to

construct or emulate does not exist and often has never existed,”

550

whereas the section

801(b)(1) standard is “flexible” and more predictable and accounts for fairness in

compensating copyright owners.

551

Though record labels are in agreement with digital music services that the section

801(b)(1) standard does not result in rates lower than fair market value, they have also

advocated changing the section 115 rate standard to the willing buyer/willing seller

standard.

552

Record labels point to the importance of emphasizing fair market value as

“the goal of any rate-setting process” and argue that harmonizing the statutory rate

545

See LaPolt Second Notice Comments at 9; MMF & FAC Second Notice Comments at 6; Modern

Works Music Publishing First Notice Comments at 4-5; see also Tr. at 250:15-21 (June 4, 2014)

(Brittany Schaffer, NMPA/Loeb & Loeb LLP).

546

NMPA & HFA First Notice Comments at 16; Tr. at 266:14-267:05 (June 16, 2014) (Ilene

Goldberg); see also Kohn First Notice Comments at 19-20.

547

LaPolt First Notice Comments at 14; NMPA & HFA First Notice Comments at 16; see also Tr. at

60:20-22 (June 4, 2014) (Brittany Schaffer, NMPA/Loeb & Loeb LLP).

548

See DiMA First Notice Comments at 23 (“The Section 801(b) standard has been time-tested to

provide fair rates (i.e., ‘reasonable fees’) that have been accepted for more than half a century in

many different contexts, including ratesetting proceedings under Sections 114(f)(1)(B), 115, and

116.”); DiMA Second Notice Comments at 21; Sirius XM First Notice Comments at 13-14; see also

Tr. at 310:01-09 (June 23, 2014) (Lee Knife, DiMA).

549

DiMA First Notice Comments at 19.

550

DiMA Second Notice Comments at 20; see also Music Choice First Notice Comments at 37.

551

DiMA Second Notice Comments at 20-21; see also Tr. at 278:21-279:02 (June 23, 2014) (Paul

Fakler, NAB/Music Choice); Tr. at 294:02-10 (June 23, 2014) (Cynthia Greer, Sirius XM).

552

RIAA First Notice Comments at 25.

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U.S. Copyright Office Copyright and the Music Marketplace

standards by bringing section 115 within the willing buyer/willing seller standard

would achieve that goal.

553

Administrative Burdens b.

Stakeholders expressed near universal concern about the inefficiencies of the mechanical

licensing process. The section 115 statutory license creates a per-work licensing model;

the same model is employed when seeking licenses through intermediaries such as

HFA.

554

Licensees seeking to release individual records typically obtain a mechanical

license for the specific product through HFA or directly from the publisher.

555

But

digital services seeking large volumes—sometimes millions—of licenses are more likely

to rely on the section 115 statutory license for at least some of their licensing needs.

Consequently, digital providers expressed considerable frustration with the song-by-

song licensing process.

556

Although the statutory licensing process is more commonly relied upon now than it has

been in the past, RIAA regarded this development as merely “an indication that musical

work licensing is so broken that mass use of the compulsory license process is the best of

a lot of bad options.”

557

In addition to the burden of seeking licenses for individual

works, licensees complain about the lack of readily available data concerning musical

work ownership, as described further below.

558

Digital services asserted that the

inaccessibility of ownership information leads to costly and burdensome efforts to

identify the rightsholders and potentially incomplete or incorrect licenses, exposing

them to the risk of statutory infringement damages despite diligent efforts.

559

A number of licensees also objected to the detailed accounting and payment

requirements imposed by section 115.

560

DiMA noted that for “direct license agreements

553

Id.

554

See, e.g., BMI First Notice Comments at 5; DiMA First Notice Comments at 20; Spotify First

Notice Comments at 3-5; RIAA First Notice Comments at 10-11.

555

See id. at 40 (describing the previously high volume of mechanical licenses issued through HFA

and the increasing practice of direct licensing for new songs and new albums).

556

See DiMA First Notice Comments at 20 (noting that “the costs [in filing NOIs with the

(June 16, 2014) (Lawrence J. Blake, Concord Music).

557

RIAA First Notice Comments at 23 n.36.

558

DiMA First Notice Comments at 20.

559

Id. at 20-21.

560

CTIA First Notice Comments at 13 (explaining that “virtually all participants in the market

have recognized that the licensing regime for the reproduction and distribution rights, which

requires specific monthly reporting and payment, is complex and burdensome”); LaPolt Second

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U.S. Copyright Office Copyright and the Music Marketplace

for rights otherwise covered by the section 115 statutory licenses, it is customary for

digital music services to pay rightsowners on a quarterly basis.”

561

The statute, however,

requires accounting and payment on a monthly basis, which increases administrative

burdens and out-of-pocket costs.

Perceived Unfairness c.

Many stakeholders are of the view that the section 115 license is unfair to copyright

owners. As one submission summed it up: “The notifications, statements of account,

license terms, lack of compliance, lack of audit provisions, lack of accountability, lack of

transparency, ‘one size fits all’ royalty rates and inability to effectively enforce the terms

of the license demonstrate a complete breakdown in the statutory licensing system from

start to finish.”

562

Lack of Audit Rights

Though there may be significant practical limitations on copyright owners’ ability to

exercise audit rights due to the burden and expense of examining licensees,

563

the right

to audit is nonetheless highly valued. Accordingly, there is a particular industry

concern that section 115 does not provide music publishers with the right to verify the

statements of account they receive from licensees.

Section 115 differs from other statutory licenses in the Copyright Act in providing for an

“honor system” of self-reporting without a verification procedure.

564

Owners of musical

works, therefore, have no choice other than to rely upon user-certified royalty

Notice Comments at 10; Tr. at 234:21-235:01 (June 23, 2014) (Cheryl Potts, Crystal Clear Music &

CleerKut).

561

DiMA First Notice Comments at 22 (emphasis in original). See 17 U.S.C. § 115(c)(5).

562

Gear Publ’g Co. & Lisa Thomas Music Servs., LLC First Notice Comments at 5-6; Geo Music

Group & George Johnson Music Publ’g First Notice Comments at 9.

563

Music Choice First Notice Comments at 21 (“Although many cases are filed by songwriters and

recording artists for underpayment of royalties, far more cases go unlitigated. This is because,

among other reasons, (1) the audit provisions in the authors’ contracts are often very restrictive;

(2) it is very expensive for an author to hire forensic accountants to conduct an audit; (3) once an

audit begins, the record company or publisher uses various tactics, including accounting records

that seem designed to obfuscate royalty revenues received and royalties due, to impede the audit;

and (4) even after underpayments are established, authors often must accept pennies on the

dollar for their claims because the cost of litigation against the record companies and publishers

is so high.”).

564

NMPA & HFA First Notice Comments at 14.

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U.S. Copyright Office Copyright and the Music Marketplace

statements that they may find difficult to trust.

565

Further complicating the situation is

that a compulsory licensee may pay all royalties to one co-owner without any

notification to the others.

566

As one stakeholder put it, “[a]n audit right is particularly necessary in the music

industry which has an admittedly long and storied history of dubious accounting

practices and exploiting songwriters. Every songwriter deserves and should be entitled

to a straight count; self-certification . . . is not sufficient.”

567

Another stated, “it’s trust

but you can’t verify . . . . [W]e’ve got to rely on the kindness of strangers that they’re

going to report accurately.”

568

For many musical work owners, the issue is not just trust, but fairness. As musician

David Lowery explained, “I have seen instances where a supposed compulsory licensee

has failed to comply with its payment obligations for years, ignored termination notices,

and yet is still able to continue to receive the benefits of new statutory licenses for

songwriters who await the same fate.”

569

Or, as another songwriter advocate concluded:

“Having been compelled by the government to license their songs to strangers, it seems

only fair that the songwriter at least be able to confirm to their reasonable satisfaction

that they are getting a straight count.”

570

565

Castle First Notice Comments at 2. As discussed above, in lieu of requiring certifications, the

mechanical licensing agent HFA instead conducts audits of licensees—a substantial benefit for its

publisher members. See Michael Simon, The Basics of Mechanical Licensing from Harry Fox, A

RTISTS

HOUSE MUSIC (July 12, 2007), http://www.artistshousemusic.org/articles/the+basics+of+

mechanical+licensing+from+harry+fox (noting HFA’s audits of licensees). But the section 115

license does not require this.

566

IPAC First Notice Comments at 3-4 (“If the digital music service pays all royalties for the use of

a musical work to only one co-owner, then that co-owner is obligated to pay the other co-owners

of the musical work their respective share of the monies received. This practice effectively shifts

to the copyright owner the accounting and payment obligations of the user. This example also

puts co-owners of the musical work who have not received the Notice at a disadvantage—these

co-owners will likely be unaware that their musical works are being used, be unaware that

royalties are due, and be in a difficult position in terms of that co-owner’s rights to audit the

digital music service.”).

567

Rys First Notice Comments at 2.

568

Tr. at 209:17-20 (June 16, 2014) (Keith Bernstein, Crunch Digital).

569

Lowery First Notice Comments at 1; see also IPAC First Notice Comments at 3-4.

570

Castle First Notice Comments at 3.

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U.S. Copyright Office Copyright and the Music Marketplace

While record companies seemed to offer some support for the ability of publishers and

songwriters to audit mechanical uses,

571

digital services objected to any sort of

verification process. In opposing an audit right, DiMA argued that the required

statements of account already provide for a method of “self-auditing,” and that auditing

requirements would be burdensome and frustrate the value of the license itself.

572

addition, due to the challenges of accounting for digital uses under different licensing

schemes, DiMA believed auditing would cause even good-faith actors to appear

noncompliant.

573

A few parties offered specific proposals for an audit right under section 115. NMPA and

HFA suggested amending section 115 to include a duty to exchange and update usage

data on a continuous basis.

574

David Lowery suggested a system whereby the Copyright

Office could investigate licensees that were not compliant with their duties under

section 115.

575

Administrative Issues

Publishers, songwriters, and licensing administrators emphasized the problem of

noncompliant statutory licensees.

576

The required notices to obtain a statutory license

are frequently deficient,

577

and licensees regularly fail to timely and accurately pay and

report usage.

578

Due to the involuntary nature of the license, publishers and songwriters

cannot easily avoid these risks, as “[n]othing in the Section 115 license scheme requires

571

RIAA Second Notice Comments at 19 (noting that major record companies “support the idea

that where there is direct licensing, publishers/writers should have a direct audit right with

respect to third parties that use their works”).

572

See DiMA First Notice Comments at 19-20.

573

Id. at 21 (“For digital music services that rely on licenses under Section 115 as well as separate

licenses for the public performance of musical works, it is often impossible to determine the

appropriate deduction for musical work public performance royalties at the time that accountings

under the Section 115 licenses are due. This is because the calculation of ‘mechanical’ royalty

rates under Section 115 requires that public performance royalties be deducted; and public

performance rates are often not determined—whether by ‘interim agreement,’ ‘final agreement’

or ratesetting proceeding—until long after the close of the month during which Section 115

royalties are due.”).

574

NMPA & HFA First Notice Comments at 9-10; see also Kohn First Notice Comments at 11.

575

Lowery First Notice Comments at 3-4.

576

See, e.g., id. 1-4.

577

Carapetyan Second Notice Comments at 1 (noting that there is “a bevy of legally deficient

‘Notices of Intention’ that force publishers into the involuntary role of teaching the fundamentals

of copyright to the masses—which is neither practical nor fair—and often in the end the cost in

effort and man-hours far exceeds the minuscule royalties for the use”).

578

Lowery First Notice Comments at 2.

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U.S. Copyright Office Copyright and the Music Marketplace

any consideration of the creditworthiness or trustworthiness of the compulsory

licensee.”

579

Many found the recourse provided by statute—termination of the license

and costly infringement lawsuits—ineffective.

580

Publishers also complained about regulatory provisions that permit payment of royalties

and service of NOIs on a single co-owner of a work, with that co-owner then under an

obligation to account to the other co-owners. As one commenter explained, “[t]his

practice effectively shifts to the copyright owner the accounting and payment

obligations of the user.”

581

At the same time, a number of parties asserted that the complex nature of the statutory

licensing scheme was unfair to licensees. Some pointed to the complexity of the section

115 royalty regulations for digital services—and the fine distinctions they draw among

different types of services—as a source of confusion as to what royalties need to be

paid.

582

Digital services also highlighted the one-sided risk of costly statutory damages

should they fail to ascertain that a first use of a work has occurred (rendering the work

eligible for statutory licensing) and timely serve an NOI on the copyright owner, even

where such determination is difficult due to lack of sufficient data.

583

Parties’ Proposals d.

Elimination of Statutory License

Songwriters and publishers appear almost universally to favor the elimination of the

section 115 statutory license, albeit with an appropriate phase-out period.

584

They assert

that the statutory regime creates an artificial status quo that precludes a private market

from developing.

585

Musical work owners predict that the elimination of a license would

allow “a functioning licensing market . . . [to] flourish.”

586

579

Id. at 2-3; see also NMPA & HFA First Notice Comments at 15.

580

See, e.g., Castle Second Notice Comments at 3 (“[A] defaulter under the statutory license can

lawfully continue sending NOIs for future licenses even if they have never paid a dime on past

licenses—the only recourse a songwriter has in this case is termination and if that too is ignored,

extraordinarily expensive federal copyright litigation.”).

581

IPAC First Notice Comment at 3; see also Rys First Notice Comments at 2.

582

See DiMA First Notice Comments at 22 (observing differences between the royalty rate

structures for some current rate categories).

583

Id. at 21.

584

See, e.g., NMPA & HFA First Notice Comments at 8; NSAI Second Notice Comments at 7; IPAC

First Notice Comments at 4.

585

See ABKCO First Notice Comments at 1 (“The free market is stifled under Section 115 licensing

requirements with government controlling rates which thereby limits and inhibits sector growth

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U.S. Copyright Office Copyright and the Music Marketplace

Digital music services, however, assert that the section 115 license is both important and

fair, as it “provides an essential counter-balance to the unique market power of copyright rights

owners . . . by providing a mechanism for immediate license coverage, thereby negating

the rights owner’s prerogative to withhold the grant of a license.”

587

Thus, some

licensees view section 115 as a protection against monopoly power that allows the public

to enjoy musical works while still compensating copyright owners.

588

Spotify argued

that the free market is not stifled by the statutory license, but that section 115 instead

acts as “an indispensable component to facilitating a vibrant marketplace for making

millions of sound recordings available to the public on commercially reasonable

terms.”

589

Blanket Licensing

In light of the widely perceived inefficiencies of song-by-song licensing of mechanical

rights—particularly as compared to the collective approach of the PROs—a wide range

of stakeholders suggested that a blanket system would be a superior means of licensing

mechanical rights.

590

As RIAA noted, blanket licensing avoids the administrative costs

associated with negotiating and managing large numbers of licenses of varying terms

and provides a way for legitimate services to avoid infringement risk.

591

Similarly, the

publisher ABKCO opined that blanket license agreements would facilitate the use of

music and would help licensees fulfill notification and reporting obligations.

592

IPAC

and innovation.”); MMF & FAC Second Notice Comments at 14-15; RIAA Second Notice

Comments at 4-5; Pipeline Project Second Notice Comments at 16.

586

NMPA & HFA First Notice Comments at 7; see also IPAC First Notice Comments at 6.

587

DiMA First Notice Comments at 19 (emphasis in original).

588

Modern Works Music Publishing Second Notice Comments at 3 (explaining that section 115 is

“an antitrust provision that accelerates the entry of musical works into the public sphere, while

ensuring that copyright holders are paid.”) (emphasis in original).

589

Spotify First Notice Comments at 3.

590

See, e.g., NARAS First Notice Comments at 3-4; DiMA First Notice Comments at 16-17; IPAC

First Notice Comments at 6-7; BMI First Notice Comments at 5; ASCAP First Notice Comments at

30-31. In 2006, the House Subcommittee on Courts, the Internet, and Intellectual Property

considered SIRA, legislation that would have created a blanket license for digital uses under

section 115. While SIRA enjoyed support from some key stakeholders and was approved by the

subcommittee, it was not passed out of the full committee. See Reforming Section 115 Hearing at 4

(statement of Rep. Howard Coble) (detailing legislative history); Mitchell, Reforming Section 115:

Escape from the Byzantine World of Mechanical Licensing at 1277 (describing support for SIRA).

591

RIAA Second Notice Comments at 13.

592

ABKCO First Notice Comments at 1-2.

112

U.S. Copyright Office Copyright and the Music Marketplace

suggested that blanket licensing could be implemented through the creation of one or

more licensing agencies.

593

To highlight the complexity of licensing in the modern music marketplace, RIAA

described the experience of one of its members, which had released “a very successful

album,” and “had to obtain for that album 1481 licenses for the release of three physical

products, the 92 digital products, the 27 songs across the 51 songwriters” with a total of

“89 shares.”

594

One of those shares “represented [a] 1.5 percent interest in a song, and

there were two publishers for that.”

595

According to the RIAA, apart from multiple

songwriter interests, one of the reasons for this explosion in licensing complexity is the

increased complexity of the releases themselves—whereas in the past a record label

release consisted of “a disk and some liner notes,” today it comprises multiple digital

formats, different kinds of audiovisual presentations, and different kinds of music

services.

596

In light of its belief that these problems “cannot be solved by piecemeal efforts,” RIAA

proposed fundamentally restructuring performance and mechanical licensing for

musical works.

597

Under the RIAA proposal, record labels would receive a compulsory

blanket license covering all rights (performance, mechanical, and synch) necessary for

what RIAA calls “modern music products,” including audiovisual products like music

videos, videos with album art or liner notes, and lyric videos.

598

The rate court and CRB

would be eliminated. Instead, the record labels and publishers would agree upon splits

of revenues received by the record labels from their sale and licensing of recorded

music. The record companies would have sole responsibility to sell and license those

products; those deals would be negotiated by the labels in the marketplace (except for

uses falling under the section 112 and 114 licenses).

599

RIAA believed that its proposal

would achieve fair market rates for publishers and songwriters while retaining the

benefits of a collective licensing system, such as simplified licensing and lower

administrative costs.

600

593

IPAC First Notice Comments at 6-7.

594

Tr. 25:11-16 (June 4, 2014) (Steven Marks, RIAA).

595

Id. at 25:16-18.

596

Id. at 24:04-26:18.

597

RIAA First Notice Comments at 15-17.

598

Id. at 16. RIAA made clear that its proposed blanket license would not cover other uses of

musical works, like synch rights for movie, television, and advertising, performances within live

venue, stand-alone lyrics, and sheet music. Id. at 17.

599

Id. at 15-18.

600

Id. at 18-22.

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U.S. Copyright Office Copyright and the Music Marketplace

But publishers and songwriters vigorously resisted RIAA’s proposal, arguing that it

would merely shift control over musical works from songwriters and music publishers

to record labels—since the labels would then be in charge of licensing decisions and

royalty rates.

601

They also expressed concern about bringing audiovisual works or other

rights currently outside of the compulsory system under a statutory blanket license.

602

NMPA characterized the RIAA’s proposal as “seeking to expand the scope of the Sec.

115 compulsory license to authorize almost all forms of exploitation of a sound

recording, including, among other things, record label created videos, and ‘first use’

rights.”

603

3. Sections 112 and 114

As compared to issues relating to the licensing of musical works, concerns regarding the

section 112 and 114 statutory licenses were relatively modest.

Royalty Rates a.

Sound recording owners appear generally satisfied with the section 112 and 114 rates set

under the willing buyer/willing seller standard.

604

A2IM, in particular, appreciates that

the CRB’s process treats all sound recordings the same for ratesetting purposes.

605

CFA and Public Knowledge, however, assert that section 112 and 114 royalties are

“much too high,” pointing to the fact that Pandora had “yet to demonstrate sustained

profitability.”

606

DiMA similarly contended that the willing buyer/willing seller

601

NMPA Second Notice Comments at 32-33; see also Tr. at 245:12-20 (June 24, 2014) (Peter

Brodsky, Sony/ATV).

602

LaPolt Second Notice Comments at 14; NMPA Second Notice Comments at 32-35; NSAI

Second Notice Comments at 8; see also Tr. at 214:14-20 (June 16, 2014) (John Barker, IPAC); Tr. at

246:21-247:09 (June 24, 2014) (Peter Brodsky, Sony/ATV).

603

NMPA Second Notice Comments at 32.

604

RIAA First Notice Comments at 32 (“All services operating under the statutory licenses should

pay fair market royalties set under the willing buyer/willing seller standard.”). In contrast, RIAA

criticized the “below-market royalty rates” set under the section 801(b)(1) standard for

grandfathered services. Id. at 31.

605

A2IM First Notice Comments at 3.

606

CFA & Public Knowledge First Notice Comments at 8. Pandora did report a modest profit in

Q3, 2013, but its current strategy is focused on expansion. Romain Dillet, Pandora Beats, Q3 2013

Revenue Up 60% to $120M, Net Income of $2.1M; Q4 Forecast Much Lower Than Expected,

ECHCRUNCH (Dec. 4, 2012), http://techcrunch.com/2012/12/04/pandoras-q3-2013/; PANDORA

MEDIA, INC., QUARTERLY REPORT (FORM 10-Q) 21 (Oct. 28, 2014), http://investor.pandora.com/

phoenix.zhtml?c=227956&p=irol-sec (click on Oct. 28, 2014 filing) (“[W]e expect to incur annual

net losses on a U.S. GAAP basis in the near term because our current strategy is to leverage any

improvements in gross profit by investing in broadening distribution channels, developing

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U.S. Copyright Office Copyright and the Music Marketplace

standard yields rates that are “high and unsustainable” and that numerous services,

including those operated by AOL, Yahoo!, East Village Radio, Turntable.fm, Loudcity,

RadioParadise, and 3 Wk, have exited the business as a result.

607

DiMA also criticized the CRB’s imposition of per-performance rates for internet radio,

suggesting that such a rate structure should not be applied “in circumstances where the

higher usage does not equate to higher revenues for the digital music service

provider.”

608

DiMA and others additionally observed that Congress felt compelled to

offer relief to internet radio services complaining of high rates under the willing

buyer/willing seller standard by passing the Small Webcaster Settlement Act of 2002 and

the Webcaster Settlement Acts of 2008 and 2009 to allow for negotiated alternatives to

the CRB-set rates.

609

Interactive/Noninteractive Divide b.

Stakeholders expressed a number of concerns regarding eligibility for the section 112

and 114 licenses.

As discussed above, interactive services are not eligible for the statutory licenses under

sections 112 and 114, though in the Second Circuit’s 2009 Launch Media decision, the

court concluded that a custom radio service—one that relies on user feedback to play a

personalized selection of music—is not an “interactive” service.

610

As a result, custom

radio services such as Pandora are treated as noninteractive and operate under section

112 and 114 licenses.

interactivity in every sense of the word except under the outdated requirements of the

statutory definition.”

611

RIAA similarly opined that Launch Media “all but extinguished

voluntary licensing of personalized streaming services at a premium [above] the

statutory rate.”

612

Notably, however, sound recording owners did not necessarily favor

innovative and scalable advertising products, increasing utilization of advertising inventory and

building our sales force.”).

607

DiMA First Notice Comments at 33 n.76.

608

Id. at 36.

609

Id. at 37; Educational Media Foundation (“EMF”) First Notice Comments at 7-8; Sirius XM First

Notice Comments at 14; Spotify First Notice Comments at 12.

610

See 17 U.S.C. § 114(d)(2)(A)(i); Launch Media, 578 F.3d 148.

611

ASCAP First Notice Comments at 44; see also BMI First Notice Comments at 22.

612

RIAA First Notice Comments at 34.

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U.S. Copyright Office Copyright and the Music Marketplace

moving personalized services out of the statutory license.

613

Instead, they advocated for

a “middle tier” of royalty rates for personalized radio services under the statutory

license.

614

Other participants argued for expansion of the statutory licensing framework to cover

additional services.

615

For instance, A2IM favored “narrowing the definition of

‘interactive service’ to cover only those services that truly offer a full on-demand

interactive experience.”

616

SAG-AFTRA and AFM also supported such an expansion, as

“[a]rtists will continue to benefit most fairly from [customized services] through

receiving an equal share of the proceeds, paid to them directly and transparently by

SoundExchange.”

617

In addition to the interactive/noninteractive distinction of section 114, concerns were

raised about the sound recording performance complement—which limits the number

of plays of a single featured artist or from a particular album in a three-hour period—as

well as section 114’s ban on the pre-announcement of songs.

618

Broadcasters said that

these requirements frustrate simulcasting activities of terrestrial radio stations that do

not adhere to these restrictions in their over-the-air broadcasts.

619

NAB contended that

the sound recording performance complement “merely serve[s] as a bargaining chip for

leverage in the negotiations with broadcasters, due solely to the undue burden such

restrictions place on radio stations that seek to stream their broadcasts,”

620

and pointed

out that record labels regularly grant broadcasters waivers of the restriction as evidence

that the record labels do not need these provisions to protect their interests.

621

NPR

noted the upstream effect of the limitation, explaining that because public radio has

limited resources, it is forced to “create separate programming depending on the

method by which it will be distributed.”

622

613

See id. (“[A]t this juncture, we do not necessarily advocate excluding from the statutory license

services that have been generally accepted as operating within the statutory license based on the

Launch decision.”).

614

ABKCO First Notice Comments at 3; see also RIAA First Notice Comments at 34.

615

Sirius XM First Notice Comments at 20-21.

616

A2IM First Notice Comments at 5.

617

SAG-AFTRA & AFM First Notice Comments at 6 (note however, that SAG-AFTRA & AFM also

support increased rates if a service has increased functionality).

618

17 U.S.C. § 114(d)(1)(C)(iv), (d)(2)(B)-(C), (j)(13).

619

NAB First Notice Comments at 4-5; NPR First Notice Comments at 5; SRN Broadcasting First

Notice Comments at 1.

620

NAB First Notice Comments at 4.

621

Id. at 5.

622

NPR First Notice Comments at 5.

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U.S. Copyright Office Copyright and the Music Marketplace

Technical Limitations of Section 112 c.

A number of digital services criticized technical limitations on the availability of the

section 112 license that applies to the ephemeral (i.e., server) copies needed to facilitate

their transmissions.

623

For example, some licensees criticized the requirement that the

licensee destroy such copies within six months’ time as “unreasonable” and “archaic”

and one that has no benefit for rightsholders.

624

NAB noted that this requirement is

particularly illogical as server copies “are not meant to be temporary.”

625

DiMA

suggested that section 112 should be substantially updated to reflect modern realities of

digital music services.

626

Others suggested that any ephemeral copies made in

furtherance of a public performance should be exempted entirely.

627

RIAA opposed a blanket exemption for ephemeral recordings, explaining that those

recordings “have value” by providing services with “improved quality of service,

operational efficiencies or other competitive advantages.”

628

RIAA also observed that

“[t]he current statutory scheme replicates marketplace agreements for sound recordings,

in which licensees commonly acquire performance and related reproduction rights in a

single transaction and pay a bundled royalty that covers both rights.”

629

Lack of Termination Provision d.

SoundExchange opined that while the section 112 and 114 licensing framework

“generally works well,” noncompliance with the statutory requirements—by irregular

or inaccurate payments or missing or incomplete reporting—is “commonplace.”

630

SoundExchange described its efforts to bring services into compliance, but also

expressed its belief that the section 112 and 114 system needs “a clear mechanism for

termination of statutory licenses for services that repeatedly fail to act in compliance

with applicable requirements,” such as the one that exists under section 115.

631

623

“Ephemeral recordings are copies that are made and used by a transmitting organization to

facilitate its transmitting activities.” U.S.

(2001), available at http://www.copyright.gov/reports/studies/dmca/sec-104-report-vol-1.pdf.

624

CTIA First Notice Comments at 16-18; DiMA First Notice Comments at 35; DiMA Second

Notice Comments at 18.

625

NAB First Notice Comments at 7; Music Choice First Notice Comments at 13.

626

DiMA Second Notice Comments at 18.

627

See, e.g., NAB First Notice Comments at 2; Sirius XM First Notice Comments at 9-10.

628

RIAA Second Notice Comments at 31-32.

629

Id. at 32.

630

SoundExchange First Notice Comments at 2, 5.

631

Id. at 5; see also 17 U.S.C. § 115(c)(6) (termination provision under section 115).

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U.S. Copyright Office Copyright and the Music Marketplace

Royalty Distribution Process e.

Unlike section 114—which provides a statutory formula for the direct distribution of

royalties by SoundExchange to artists, record labels and musicians—the related section

112 license contains no such requirement. Some submissions suggested that the

royalties collected by SoundExchange as the designated agent under the section 112

license should be distributed to artists directly, as under section 114, rather than through

record labels.

632

Music Choice commented that, “[d]ue to the terms of their agreements

with the record companies and various record company accounting practices . . . the vast

majority of recording artists never see a penny of the portion of the performance royalty

allocated to the Section 112 license.”

633

In addition, section 114 currently does not allocate a share of royalties to record

producers, so there is no statutory mandate for direct payment to producers. Instead,

individual contracts between recording artists and producers provide for producer

compensation, which may include a share of royalties.

634

SoundExchange has begun

processing direct payment of the producer’s share of performance royalties on a

voluntary basis when it receives written authorization from the featured artist.

635

NARAS has proposed to make this process a “consistent and permanent” feature of

section 114.

636

4. Public and Noncommercial Broadcasting

As discussed above, the activities of public and noncommercial educational broadcasters

are subject to two different statutory licenses as well as PRO licensing and ratesetting.

Noncommercial broadcasters complain about the divergent licensing mechanisms for

the various music rights they must acquire. Noncommercial religious broadcasters

observed that, to clear musical works rights, they could be required to participate in a

CRB proceeding under section 118 for over-the-air transmissions, two rate court

proceedings under the consent decrees for digital transmissions of ASCAP and BMI

works, and private negotiation for digital transmissions of SESAC works.

637

In addition,

632

See Music Choice First Notice Comments at 13; Resnick Second Notice Comments at 1.

633

Music Choice First Notice Comments at 13; see also Resnick Second Notice Comments at 1.

634

See NARAS First Notice Comments at 5.

635

2013 Letter of Direction, SOUNDEXCHANGE (Apr. 14, 2013), https://www.soundexchange.com/

wp-content/uploads/2013/05/Letter-of-Direction-04-14-13.pdf (“2013 SoundExchange Letter of

Direction”).

636

See NARAS First Notice Comments at 5-6.

637

NRBNMLC First Notice Comments at 14-15.

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U.S. Copyright Office Copyright and the Music Marketplace

ascertaining the rate for digital performances of sound recordings requires participation

in yet another CRB ratesetting proceeding under section 114.

638

Noncommercial broadcasters thus seek to expand the section 118 license to encompass

“all music elements.”

639

Noncommercial religious broadcasters proposed, in particular,

“[f]olding digital transmissions of musical works into the existing section 118 license

applicable to broadcast transmissions.”

640

NPR advocated for a further step: broadening

the section 118 license to encompass “all known and yet to be created distribution

methods and technologies,” including physical products and permanent digital

downloads.

641

Finally, noncommercial broadcasters seek to ensure that the policy-oriented 801(b)(1)

ratesetting standard will apply to any expanded version of the section 118 license.

642

5. Concerns Regarding CRB Procedures

As with the rate courts, many stakeholders expressed concern about the CRB ratesetting

process—many of which are governed by detailed statutory provisions

643

—including

specific concerns regarding discovery procedures, the settlement process, and bifurcated

proceedings.

Inefficiencies and Expense a.

cost of proceedings before the CRB.

644

RIAA and SoundExchange suggested that one

way to reduce costs would be to simplify the rate standards and move to a

638

EMF First Notice Comments at 8-9 (noting reasons noncommercial broadcasters are unlikely to

settle in section 114 proceedings).

639

NPR First Notice Comments at 7.

640

NRBNMLC First Notice Comments at 15.

641

NPR First Notice Comments at 7; see also Public Television Coalition (“PTC”) First Notice

Comments at 11.

642

See NRBNMLC First Notice Comments at 16. While the 801(b)(1) “reasonable terms and rates”

standard currently applies under section 118, sound recording uses under section 114(d) are

subject to the willing buyer/willing seller standard. 17 U.S.C. §§ 114(d), 801(b)(1);

Noncommercial Educational Broadcasting Compulsory License, 63 Fed. Reg. 49,823, 49,824 (Sept.

18, 1998) (noting the rate standard for section 118 is “reasonable terms and rates” with no further

statutory criteria, but the legislative history of section 118 indicated that “the rate should reflect

the fair value of the copyrighted material”).

643

See 17 U.S.C. § 801 et seq.

644

See, e.g., ASCAP First Notice Comments at 24 n.31; Music Choice First Notice Comments at 29-

31; RIAA First Notice Comments at 36; Sirius XM First Notice Comments at 17.

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U.S. Copyright Office Copyright and the Music Marketplace

straightforward willing buyer/willing seller rate standard across the board.

645

SoundExchange noted that “[r]elative to a streamlined fair market value standard, every

specific factor included in a rate standard increases cost and decreases predictability.”

646

Stakeholders also pointed to the bifurcated ratesetting procedures contemplated by

statute—which references separate direct and rebuttal phases of ratesetting hearings

647

—

as a significant and costly inefficiency,

648

creating a “‘two ships passing in the night’

quality to the proceedings.”

649

There was broad support for eliminating the bifurcated

nature of trials before the CRB because “[b]ifurcation offers no advantages or efficiencies

in discovery, comprehension of complex issues, savings in judicial resources, or

elimination of duplicative presentations of evidence.”

650

Another shortfall of the system is that the rate adjustment process occurs only once

every five years. Parties representing both copyright owners and music users found the

process slow and insufficiently responsive to new and developing technologies and

services.

651

Because ratesetting occurs only on a periodic basis, copyright owners and

users must attempt to predict and accommodate each type of service that might arise in

the upcoming five-year period.

652

For instance, as RIAA recounted, “[t]he Section 115

rate-setting process . . . resulted in a rate schedule with 17 different rate categories, and

in which publishers and songwriters can receive varying percentages of the relevant

content royalty pool” based on those categories, causing the administration of payments

to be “exceedingly complex.”

653

645

See, e.g., RIAA First Notice Comments at 36; SoundExchange First Notice Comments at 6-8.

646

SoundExchange Second Notice Comments at 10; see also RIAA Second Notice Comments at 43

(noting a single-factor rate standard as a possible streamlining measure).

647

17 U.S.C. § 803(b)(6)(C).

648

NAB First Notice Comments at 19 & n.11; Sirius XM First Notice Comments at 17.

649

Music Choice First Notice Comments at 30; see Sirius XM First Notice Comments at 17 (same).

650

NAB First Notice Comments at 20.

651

See BMI First Notice Comments at 27; DiMA First Notice Comments at 23; RIAA First Notice

Comments at 45; Tr. at 256:02-06 (June 16, 2014) (Jason Rys, Wixen Music Publishing).

652

Kohn First Notice Comments at 14 (referencing the “unnecessarily complex set of individual

rate regimes for the various uses contemplated by Section 114 by various kinds of defined

transmitters”).

653

RIAA First Notice Comments at 24; see also id. at 11-12 (further noting frustrations with

mechanical royalty ratesetting).

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U.S. Copyright Office Copyright and the Music Marketplace

Settlement Obstacles b.

In theory, Congress designed the CRB procedures to facilitate and encourage settlement

rather than administrative ratesetting by the CRB. Several stakeholders, however, noted

practical and procedural hurdles they have encountered in finalizing settlements.

The most common stakeholder plea was to modify the CRB process so the Judges would

act quickly on any settlement.

654

Stakeholders complained that even where a settlement

is reached, the CRB has delayed ruling on the settlement,

655

sometimes adopting the

settlement only after the proceedings were concluded.

656

RIAA also observed that delay

of settlement has frustrated the business plans of services.

657

Music Choice commented

that delays during the voluntary negotiation period leave inadequate time for parties to

conduct rate proceedings.

658

To address these issues, SoundExchange proposed bypassing CRB approval of

settlements by granting the section 112 and 114 designated agent (i.e., SoundExchange)

the authority to enter into opt-in settlement agreements for a statutory license.

659

further suggested that the CRB could be required to adopt a negotiated settlement even

if it would not fully resolve a case.

660

SoundExchange also surmised that parties may be

reluctant to settle because the negotiated rate may be used as a benchmark or otherwise

in rate determinations, and suggested that parties be permitted to designate settlements

as non-precedential.

661

Discovery Process c.

Music services criticized the discovery process that applies to ratesetting proceedings

before the CRB on two grounds. First, they observed that because the statute specifies

that discovery occurs only after the submission of the parties’ direct cases—contrary to

the ordinary practice in civil litigation—“parties are required to assume what they will

654

See, e.g., Tr. at 141:16-21 (June 16, 2014) (Tegan Kossowicz, UMG) (“With respect to an earlier

mention of the implementation of CRB settlements, they should be expedited when possible, and

that doesn’t just pertain to both these sections, but as well as other proceedings that we may have

in the future on licensing.”).

655

Tr. at 99:16-100:03 (June 16, 2014) (Brad Prendergast, SoundExchange); Tr. at 129:17-130:03

(June 23, 2014) (Steven Marks, RIAA).

656

SoundExchange First Notice Comments at 9 n.12; Tr. at 122:15-22 (June 23, 2014) (Colin

Rushing, SoundExchange).

657

RIAA First Notice Comments at 24-25.

658

Music Choice First Notice Comments at 30.

659

SoundExchange First Notice Comments at 9-10.

660

Id. at 9.

661

Id. at 10.

121

U.S. Copyright Office Copyright and the Music Marketplace

develop during discovery and hope that relevant information will be voluntarily

revealed by their opponent in the opponent’s written case.”

662

Licensees believe that this

process puts them at a disadvantage, because much of the information regarding

benchmark rates is held by copyright owners.

663

In addition, the statutory procedures

limit discovery to documents directly related to the direct statements.

664

Licensees

suggested that this rule allows copyright owners to behave strategically in their own

direct statement and thus limit discovery.

665

Music providers also complained about the statutory limits on discovery.

666

While

recognizing the hypothetical benefits of a streamlined discovery process, some observed

that there are no actual cost savings and the restrictions are not fair.

667

According to

licensees, the 60-day discovery window is too short,

668

and the statutory limit of 25

interrogatories and 10 depositions for all parties on each side is insufficient.

669

Other

discovery-related suggestions included adoption of a standardized blanket protective

order that would be implemented for “non-public, commercially-sensitive information

produced in discovery and submitted as evidence.”

670

NAB also supported use of the

Federal Rules of Civil Procedure and Federal Rules of Evidence, with slight

modifications, for CRB proceedings.

671

In response to these concerns about discovery, copyright owners argued that the

commenting parties “did not identify any instance in which the Judges believed the

662

DiMA First Notice Comments at 38.

663

See id. at 38-39; Music Choice First Notice Comments at 29-30; Sirius XM First Notice

Comments at 15-16; Tr. at 104:10-105:12 (June 16, 2014) (Gary R. Greenstein, Wilson Sonsini

Goodrich & Rosati).

664

17 U.S.C. § 803(b)(6)(C)(v).

665

Music Choice First Notice Comments at 29; Sirius XM First Notice Comments at 16.

666

See 17 U.S.C. § 803(b)(6).

667

Music Choice First Notice Comments at 29; Tr. at 208:19-209:07 (June 4, 2014) (Lee Knife,

DiMA).

668

DiMA First Notice Comments at 38; see also NAB First Notice Comments at 20 (supporting

longer discovery periods); Sirius XM First Notice Comments at 16-17 (same).

669

DiMA First Notice Comments at 38-39; see also Music Choice First Notice Comments at 30

(“[G]iven the number of witnesses and the number of participants in most proceedings, the

discovery) is clearly insufficient.”).

670

NAB First Notice Comments at 3; Music Choice First Notice Comments at 31 (“The cost of

participation in rate proceedings should not include the risk that confidential business

information may be publicly disclosed. A standardized blanket protective order, similar to that

employed by the Trademark Trial and Appeals Board, would be helpful.”).

671

NAB First Notice Comments at 21.

122

U.S. Copyright Office Copyright and the Music Marketplace

current procedures prevented a full record from being developed,”

672

and added that

“open-ended discovery” would add to the complication, expense, or inefficiency of

proceedings.

673

At the same time, copyright owners agreed that conducting discovery

“up front” could be “helpful,” along with eliminating the bifurcated nature of CRB

proceedings.

674

C. Licensing Efficiency and Transparency

1. Music Data

Lack of Reliable Public Data a.

Based on the record in this proceeding, there can be little doubt that the current music

licensing landscape is severely hampered by the lack of publicly accessible, authoritative

identification and ownership data.

675

There are several facets to this problem.

To begin with, there is a lack of comprehensive and reliable ownership data, particularly

for musical works. As RIAA noted, “it is difficult to identify and keep track of musical

work ownership due to changes when musical works and catalogs change hands.”

676

Further complicating the situation is that the rights to musical works are often split

among multiple songwriters, with differing publishers and PROs, making musical work

data harder to track and maintain.

677

In addition, digital music files often do not include the standard identifiers for the

copyrighted works the files embody—i.e., the ISRC for the sound recording and the

ISWC for the underlying musical work.

678

Even when the file includes the ISRC, as is

672

SoundExchange Second Notice Comments at 10.

673

Tr. at 115:20-116:07 (June 4, 2014) (Steven Marks, RIAA); see also SoundExchange Second Notice

Comments at 10.

674

Tr. at 107:19-108:22 (June 4, 2014) (Steven Marks, RIAA); see also RIAA Second Notice

Comments at 43 (favoring “earlier disclosure of a focused set of critical information”).

675

See, e.g., RIAA First Notice Comments at 17, 20, 22; NMPA & HFA First Notice Comments at

10-12; Peter Menell First Notice Comments at 2; CFA & Public Knowledge First Notice Comments

at 28; RMLC First Notice Comments at 7-9; TMLC First Notice Comments at 16; Spotify First

Notice Comments at 11; IPAC Second Notice Comments at 2; Music Licensing Hearings at 71-72

(statement of Jim Griffin, OneHouse LLC).

676

RIAA First Notice Comments at 46.

677

See Spotify First Notice Comments at 4.

678

DiMA Second Notice Comments at 6 (“Neither ISRC Codes nor ISWC Codes are applied to all

works, nor are they applied uniformly or correctly, even when they are attached to work.”); but

compare Tr. at 382:20-22 (June 23, 2014) (Andrea Finkelstein, SME) (“I would say for the majors,

everything that is in digital release has an ISRC associated.”), with MMF & FAC Second Notice

123

U.S. Copyright Office Copyright and the Music Marketplace

now commonplace for new releases, the ISWC for the underlying musical work is often

not yet assigned at the time of initial release.

679

And even after an ISWC has been

obtained by the musical work owner, there is no comprehensive, publicly accessible

database that can be used to match the ISRC to the ISWC.

680

Google noted that requiring

licensors to supply data helps to “identify exactly what it is they are licensing . . . both

from a deal implementation standpoint as well as a deal valuation standpoint,” adding

that “those sort of data requirements . . . work their way back up the chain, to the

creators.”

681

Beyond the ISRC and ISWC, there is also a lack of universal and uniform data to identify

songwriters and recording artists associated with individual works. While a global

identifier for creators—the ISNI—has been certified by ISO to replace older systems

employed by the PROs and others, it is not yet widely used.

682

These shortcomings cause serious inefficiencies. Licensees expend significant effort

attempting to identify particular sound recordings and the musical works they embody,

as well as tracking down their copyright owners. Because there is no centralized data

resource, stakeholders devote “significant resources to maintaining redundant and often

inconsistent databases of musical work ownership and split information.”

683

Digital

services noted that the lack of an authoritative source of data exposes even well-

intentioned actors to potential statutory damages for “inadvertently distributing works

without requisite authorization.”

684

According to DiMA, this risk is inequitable because

685

Comments at 29 (“Contrary to oral testimony to the New York Roundtable in June, the [ISRC] has

not, in our experience, achieved the penetration that is seen with ISWC.”).

679

See Tr. at 336:17-19 (June 23, 2014) (Andrea Finkelstein, SME) (“No, we don’t have ISWCs, and

we certainly don’t have them at that point [when a sound recording is sent to a digital service

provider].”).

680

CCIA Second Notice Comments at 2 (“[A]lthough Industry Standard Recording Codes (ISRCs)

have existed for more than two decades, there is still not a recorded database of them.”); Tr. at

345:05-06 (June 23, 2014) (Andrea Finkelstein, SME) (“There is [an ISRC database] cooking at

SoundExchange.”).

681

Tr. at 53:09-17 (June 23, 2014) (Waleed Diab, Google/YouTube).

682

See Pipeline Project Second Notice Comments at 5; Tr. at 516:02-09 (June 23, 2014) (Bob Kohn,

Kohn on Music Licensing); Tr. at 558:11-14 (June 23, 2014) (Lynn Lummel, ASCAP); see also ISNI,

http://www.isni.org (last visited Jan. 30, 2015).

683

RIAA Second Notice Comments at 32; see also NMPA & HFA First Notice Comments at 10-11.

684

Menell First Notice Comments at 2.

685

DiMA First Notice Comments at 17, 29.

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U.S. Copyright Office Copyright and the Music Marketplace

Commenters also referenced the recent Pandora rate court decision, in which the court

found that withdrawing publishers did not supply catalog data that would have allowed

Pandora to pull their songs from its service.

686

Some were troubled by this tactic, and

urged that, if this type of publisher withdrawal is allowed, the withdrawing publisher

must be required to “provide immediate transparency as to the musical works that are

no longer subject to license.”

687

On the licensor side of the equation, the lack of reliable data means that royalty

payments may be delayed, misdirected, or never made.

688

SoundExchange highlighted

in particular the problems caused when digital services fail to include standard

identifiers in their reports of usage under the section 112 and 114 statutory licenses. It

explained that basic data elements—featured artist name, track title, album name, and

label name—“simply are not sufficient to distinguish unambiguously among the tens of

millions of recordings actively being commercialized today.”

689

Instead, “standard

identifiers are the only practicable way to identify and accurately account for usage of all

those recordings.”

690

RIAA similarly noted that “[a] flourishing musical work licensing marketplace requires

both that potential licensees can get licensed and that royalties flow properly to music

publishers and songwriters,” and that “reliable and accessible information is critical to

making that happen.”

691

NMPA agreed, saying that a “database where we know the

rights” would be valuable.

692

Flawed or missing data is not a problem unique to major

labels or famous artists, and A2IM commented that inaccurate data is “especially

problematic for the independent label community” because it is harder to identify lesser-

known artists without accurate data.

693

686

Pandora Ratesetting, 6 F. Supp. 3d at 358-60.

687

Spotify First Notice Comments at 11.

688

RIAA First Notice Comments at 46; Music Licensing Hearings at 74-75 (statement of Jim Griffin,

OneHouse LLC).

689

SoundExchange First Notice Comments at 25.

690

Id.

691

RIAA Second Notice Comments at 17; see also Music Licensing Hearings at 75 (statement of Jim

Griffin, OneHouse LLC) (“[A]bsent the use of [global universal identifiers] money disappears

along its path to its intended receiver. Where does that money go? To pools of unattributed

income, divided through market share formulas at the organizations that collect the money.”).

692

Tr. 38:05-08 (June 4, 2014) (Brittany Schaffer, NMPA/Loeb & Loeb).

693

A2IM Second Notice Comments at 2.

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U.S. Copyright Office Copyright and the Music Marketplace

Parties’ Views b.

In light of the concerns identified above, there appears to be widespread agreement that

authoritative and comprehensive data related to the identity and ownership of works

would substantially enhance transparency in the music licensing system, reduce

transaction costs, and facilitate direct licensing through private negotiation in the open

market.

694

There is, however, less harmony about the best way to achieve this goal.

Some suggested that the government should play a central role. DiMA, for example,

proposed that the Copyright Office create and maintain a music database, while others

called for the Office to identify and publicize data standards, and facilitate or require

submission of such data in the registration or recordation process.

695

Others conceived

of quasi-governmental solutions. FMC stated that Congress might consider creating a

“nonprofit to oversee the development of a global registry database (or databases) that

could be overseen by government, in cooperation with international bodies.”

696

Several

licensees suggested ASCAP and BMI should be required to provide better and more

usable repertoire data.

697

Some proposed more market-based solutions, such as data

expert Jim Griffin’s proposal to emulate the registration system for websites, whereby

the government would engage in standards-setting to encourage the creation of profit-

seeking private registries, similar to domain name registries like GoDaddy.

698

Others groups—principally representing copyright owners—believed that government

involvement was unnecessary. In NMPA’s view, if the market for creative works were

unregulated and free of governmental price controls (including the section 115 license),

“transactional hubs, syndication platforms and other supply chain management

platforms” would develop to match buyers to sellers and to allocate and distribute

revenues.

699

For their part, the PROs highlighted their online repertoire databases and

efforts such as MusicMark to enhance access to reliable repertoire data.

700

The PROs

694

DiMA Second Notice Comments at 3-4, 7; Tr. at 381:08-11(June 23, 2014) (Waleed Diab,

Google/YouTube).

695

DiMA Second Notice Comments at 5; see also Sirius XM First Notice Comments at 6-7;

SoundExchange Second Notice Comments at 6; A2IM Second Notice Comments at 2; CCIA

Second Notice Comments at 3.

696

FMC First Notice Comments at 22; see also CFA & Public Knowledge First Notice Comments at

28.

697

NAB Second Notice Comments at 2; CTIA First Notice Comments at 7; DiMA Second Notice

Comments at 6-7.

698

Music Licensing Hearings at 72 (statement of Jim Griffin, OneHouse LLC).

699

NMPA & HFA Second Notice Comments at 3.

700

ASCAP Second Notice Comments at 12-13 (citing “ASCAP’s searchable database, named

ASCAP Clearance Express or ACE, at http://www.ascap.com/ace”); BMI Second Notice

Comments at 9 (citing BMI’s extensive searchable repertoire database at http//www.bmi.com).

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U.S. Copyright Office Copyright and the Music Marketplace

acknowledged that their plans do not include making all of their data available to the

public, however, stressing that they face significant confidentiality concerns.

701

RIAA noted that assignment of ISRCs and ISWCs could be better coordinated (e.g., by

having the record company first recording a new song assign the ISRC and ISWC in

tandem to ensure that the ISWC will be available to relevant stakeholders upon a song’s

release).

702

Stakeholders generally shared the view that such solutions are worth

exploring.

703

Both SoundExchange and RIAA observed that there are fewer problems with sound

recording than musical work data.

704

According to them, sound recording identification

and ownership information is generally available from product packaging, or from

publicly available internet sources such as allmusic.com and discogs.com.

705

Additionally, digital services generally receive metadata from record companies and

distributors providing music files.

706

RIAA pointed out that, unlike musical works,

ownership of sound recordings is rarely divided among multiple co-owners, and record

companies owning commercially significant recordings are less numerous than music

publishers, with less frequent changes in ownership.

707

SoundExchange additionally explained that it maintains robust identification and

ownership information, including ISRCs for approximately 14 million sound

recordings.

708

SoundExchange is actively exploring means by which it might provide

statutory licensees with access to its database for statement of account purposes. For

example, SoundExchange may offer music services the capability to search for ISRCs or

supply music services with ISRCs that are missing from their reports of use.

709

701

Id. at 5; ASCAP Second Notice Comments at 7-8.

702

See, e.g., RIAA Second Notice Comments at 35-36; Tr. at 346:01-349:13 (June 23, 2014) (Lynn

Lummel, ASCAP; Andrea Finkelstein, SME; Jacqueline Charlesworth & Sarang Damle, U.S.

703

See, e.g., Pipeline Project Second Notice Comments at 9; DiMA Second Notice Comments at 6-8;

RIAA Second Notice Comments at 35-36.

704

Id. at 33; SoundExchange Second Notice Comments at 4.

705

RIAA Second Notice Comments at 33.

706

SoundExchange Second Notice Comments at 4; RIAA Second Notice Comments at 33; Tr. at

336:02-12 (June 23, 2014) (Andrea Finkelstein, SME; Sarang Damle, U.S. Copyright Office)

(describing metadata delivered by record companies).

707

RIAA Second Notice Comments at 33.

708

SoundExchange Second Notice Comments at 4-5.

709

Id. at 5.

127

U.S. Copyright Office Copyright and the Music Marketplace

SoundExchange and RIAA together emphasized that licensees operating under the

section 112 and 114 licenses should use available identifying information, particularly

ISRCs, when reporting usage to SoundExchange.

710

Such an obligation would increase

automatic matching of reported usage to known repertoire and facilitate accurate

manual matching when necessary, thus enhancing the data maintained by

SoundExchange.

711

Both parties noted that adoption of such a requirement would

encourage broader use of the ISRC standard.

712

2. Usage and Payment Transparency

Incomplete or inaccurate data frustrates the ability of creators and sellers of music to

track how music is used and what payments are made. Even when accurate data is

available, however, stakeholders had concerns about the effectiveness of music usage

and payment tracking for payment allocation and about the lack of audit rights for

certain licenses. At bottom, the issue in the music industry is that participants want

reassurance that they are being treated fairly by other actors.

713

Advances and Equity Deals a.

There was a growing concern that payments received by record companies and music

publishers from new digital music services as part of direct deals are not being shared

fairly with songwriters and recording artists.

714

SAG-AFTRA and AFM warned that

while direct licensing deals between digital music services and record labels or

publishers may result in more compensation from licensees, direct deals may actually

result in lower payments to artists than under the statutory licensing scheme.

715

710

Id.; RIAA Second Notice Comments at 35.

711

SoundExchange Second Notice Comments at 5.

712

Id.; RIAA Second Notice Comments at 35. These parties noted that the CRB is currently

considering updates to the relevant notice and recordkeeping regulations.

713

Tr. at 86:01-03 (June 4, 2014) (Brittany Schaffer, NMPA/Loeb & Loeb LLP) (explaining that

“there’s a lack of trust between the record companies and the publishers”); Tr. at 77:15-17 (June

16, 2014) (Eric D. Bull, Create Law) (noting that “there’s such distrust because of the amount of

the money that is going to be exchanged”); Tr. at 14:03-05 (June 17, 2014) (Garry Schyman, SCL)

(“[W]e really don’t trust a publisher who is not in a position to tell us what we are entitled to.”).

714

Resnick Second Notice Comments at 2 (“Spotify alone is reported to have paid hundreds of

millions in dollars in upfront and non-recoupable payments for the privilege of licensing major

label catalogues.”).

715

SAG-AFTRA & AFM First Notice Comments at 7; SAG-AFTRA & AFM Second Notice

Comments at 2 (“Whatever the individual royalty artist’s share, it will not be paid directly, it will

be subject to recoupment, and it will only be verifiable (if at all) through a complex and expensive

individual audit under the royalty contract.”).

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U.S. Copyright Office Copyright and the Music Marketplace

A major objection to direct licensing is that labels and publishers do not necessarily

share advance payments of royalties—in particular, unrecouped advances or “breakage”

monies—with creators.

716

Advance payments of royalties can be significant; Google, for

instance, reportedly paid more than $400 million to WMG under a recent three-year deal

to license the label’s music for YouTube and its subscription offerings.

717

In many cases,

if an advance is not fully recouped (i.e., fully applied to royalties due) by the end of the

license term, the excess fees are retained by the label or publisher rather than returned.

The question is whether these funds are accounted for and paid out by the label or

publisher to its artists or songwriters.

Some record labels and publishers may share unrecouped advances with performers

and writers, but the practice is not universal.

718

And while well-established musicians

may occasionally negotiate a right to collect on breakage,

719

others are not as

successful.

720

Negotiating for these payments can be difficult, as artists and songwriters

are not necessarily aware of deal terms. For example, SGA commented that without the

testimony of an executive representing DMX in a BMI rate court proceeding, the

songwriting community would never have known of a $2.4 million advance paid by

DMX to Sony/ATV.

721

Similarly suspect for creators are equity deals between major labels and digital services.

It has been reported, for instance, that the major labels collectively acquired an 18%

ownership interest in Spotify.

722

Referencing Spotify, as well as YouTube and

Musicmaker, Perry Resnick, who conducts music audits, commented that “[m]any deals

are not done unless the major labels receive a share of equity in the licensee, which also

lowers the royalty rates paid for specific recordings, sometimes down to zero.”

723

There

716

See A2IM Second Notice Comments at 5-6 (defining breakage as “excess revenue that cannot

be attributed to specific recordings or performances and, therefore, is not required to be shared

with artists, songwriters or the actual sound recording copyright owner”); Resnick Second Notice

Comments at 2 (“[E]xcess payments are not shared with recording artists.”).

717

Karp, Artists Press for Their Share.

718

For example, Martin Bandier of Sony/ATV has stated that his company does not share extra

advance money because “there [isn’t] much to share.” Karp, Artists Press for Their Share.

719

A2IM Second Notice Comments at 6; Tr. at 143:08-11 (June 23, 2014) (Richard Bengloff, A2IM).

720

Tr. at 109:13-110:03 (June 5, 2014) (Robert Meitus, Meitus Gelbert Rose LLP).

721

SGA Second Notice Comments at 14-15 (Sony/ATV was also paid $300,000 for administrative

expenses).

722

See Lindvall, Behind the Music: The Real Reason Why the Major Labels Love Spotify.

723

Resnick Second Notice Comments at 2.

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U.S. Copyright Office Copyright and the Music Marketplace

seems to be no reliable practice, however, under which artists and songwriters are

compensated for such equity arrangements.

724

PRO Distributions b.

PROs create value by licensing, administering, and enforcing music creators’ public

performance rights. Yet some songwriters voiced concerns that part of this value is lost

through inaccurate payment allocation. PROs frequently use sampling surveys to

estimate how many times a song has been performed during a payment period, and rely

upon those estimates to allocate royalties among their members.

725

An alternative, and more comprehensive, form of measurement is census reporting,

whereby licensees account for each use of a musical work (e.g., each individual stream)

to the collecting entity. Census reporting is more common for digital services, where it

is easier to track individual performances.

726

ASCAP relies upon census data only when

it is “economically feasible” to process.

727

For many uses—including terrestrial radio

uses and some digital uses—ASCAP uses a sample survey.

728

BMI similarly relies upon

extrapolated data to pay royalties in many instances.

729

Information concerning

ASCAP’s and BMI’s distribution practices is publicly available on their websites.

730

Some musicians and publishers commented that increased use of census data instead of

surveys would result in more accurate payments by PROs to their members under

blanket licenses. For instance, Music Services stated that survey-based distribution,

particularly for radio and live performances, is “antiquated” and that “[m]any

724

Karp, Artists Press for Their Share.

725

According to one source, “[m]ost performance data is drawn from broadcast sources, under

the assumption that the music being performed over radio and television is roughly the same as

the music being performed in cafes, hotels, sports arenas, . . . restaurants, and nightclubs.” K

OHN

at 1281.

726

See NMPA & HFA First Notice Comments at 9. For instance, SoundExchange pays almost

entirely on a census basis, and does not generally use sampling. See SoundExchange Second

Notice Comments at 7.

727

ASCAP Payment System: Keeping Track of Performances, ASCAP, http://www.ascap.com/

members/payment/keepingtrack.aspx (last visited Jan. 30, 2014).

728

Payment System: The ASCAP Surveys, ASCAP,

http://www.ascap.com/members/payment/surveys.aspx (last visited Jan. 30, 2014).

729

Royalty Policy Manual, BMI, http://www.bmi.com/creators/royalty_print/detail (last visited Jan.

16, 2015).

730

ASCAP’s Survey and Distribution System: Rules & Policies, ASCAP (June 2014),

http://www.ascap.com/~/media/files/pdf/members/payment/drd.pdf; Royalty Policy Manual, BMI,

http://www.bmi.com/creators/royalty_print/detail (last visited Jan. 16, 2015).

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U.S. Copyright Office Copyright and the Music Marketplace

publishers and writers believe they are not receiving their fair share of the PRO pot.”

731

Other participants observed that under a sampling system, musicians who do not have

“mainstream” songs on the radio are underpaid.

732

Under this view, since sampling is

more likely to identify hit songs, the PRO will likely undercount performances of works

by emerging or fringe musicians.

In response, a representative from ASCAP sympathized, stating “ideally, yes, I wish

everyone would get paid for every performance,” but noted the administrative

impracticality of identifying every use.

733

Others echoed this sentiment, commenting

that even if uses could be precisely tracked, some would be so small that they would not

be payable.

734

Nonetheless, ASCAP notes that “[a]s new technologies make surveying a

given medium such as broadcast radio economically efficient, we implement those

technologies to move closer to a full census.”

735

For its part, BMI commented that there

is competition between PROs for members and the market will sufficiently drive

distribution methodologies.

736

Despite these concerns, songwriters generally expressed confidence in the PROs.

737

The

PROs are seen as relatively transparent

738

and as protecting the writer’s share of

performance royalties.

739

SGA noted that “licensing through the PROs . . . has benefited

and given protection to the community of American music creators for over one

hundred years” by “provid[ing] music creators with the crucial assurance that an

important source of revenue will be paid directly to them by the PRO.”

740

Similarly, in

NSAI’s estimation, “ASCAP and BMI essentially act as not-for-profit collection arms for

songwriters and composers.”

741

“Pass-Through” Licensing c.

As noted above, under section 115, compulsory licensees can authorize third-party

streaming services to transmit downloads and streams of musical works. Songwriters

731

Tr. at 261:20-262:03 (June 5, 2014) (Phil Perkins, Music Services).

732

Tr. at 22:14-25:19 (June 5, 2014) (Royal Wade Kimes, Wonderment Records); see Simpson First

Notice Comments at 2.

733

Tr. at 28:17-29:02 (June 5, 2014) (Sam Mosenkis, ASCAP).

734

Modern Works Music Publishing Second Notice Comments at 6-7.

735

ASCAP Second Notice Comments at 17.

736

BMI Second Notice Comments at 15.

737

Council of Music Creators First Notice Comments at 2-3.

738

SCL First Notice Comments at 11.

739

Music Choice First Notice Comments at 20.

740

SGA First Notice Comments at 7.

741

NSAI Second Notice Comments at 4.

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U.S. Copyright Office Copyright and the Music Marketplace

and publishers complain vigorously about this system.

742

SGA pointed out that pass-

through licensing “creates a situation in which the creators and owners of musical

compositions have no privity of contract with online music distribution giants such as

Apple iTunes, and must therefore rely on sometimes adversarial record company

‘intermediaries’ for the monitoring and payment of royalties earned via online

download usage.”

743

Another commenter explained that “pass-through licensing, where

record labels can license mechanical rights directly on publishers’ behalf and without

publishers’ input, leaves songwriters with no clue as to whether or not they are properly

paid.”

744

Stakeholders appear largely to agree that the pass-through approach—which mimics the

traditional physical model, where record labels ship product to stores and report sales

back to publishers—is unnecessary in the digital environment, since it is feasible for

music owners to have a direct relationship with consumer-facing distributors.

Significantly, even RIAA, a presumed beneficiary of the section 115 pass-through

license, appears to favor the end of pass-through licensing: “The major record

companies generally support in principle the elimination of pass-through licensing . . .

within the context of a structure that makes it unnecessary.”

745

742

ASCAP and BMI also express displeasure with the analogous “through-to-the-audience”

licenses required under the ASCAP and BMI consent decrees, where a party that procures a

license from the PRO is able to authorize transmissions by additional distributors. See ASCAP

Consent Decree § V; BMI Consent Decree § IX. Originally conceived to allow networks to obtain

licenses that extend to downstream broadcasts by affiliates, the concept has been extended to

online services such as YouTube that allow their video content to be shared and embedded on

third-party websites that may be generating revenue through advertisements or otherwise.

ASCAP First Notice Comments at 19. Per ASCAP, “a through-to-the-audience license request can

give unfettered permission to a huge number of users without the benefit of full remuneration to

music creators.” Id. at 20.

743

SGA First Notice Comments at 6-7. In recently promulgated regulations, the Copyright Office

added a new requirement for section 115 licensees that requires them to break down royalty

statements to indicate usage by third-party services, so copyright owners can at least see what is

being reported to the section 115 licensee. 37 C.F.R. §§ 210.16-210.17.

744

LaPolt Second Notice Comments at 11; see also NMPA &HFA First Notice Comments at 12 (“To

the extent compulsory licensees pass through mechanical rights to a third-party digital music

distributor and do not report who the third-party distributor is, songwriters and music

publishers do not even know how their compositions are being used and cannot evaluate the

accuracy of the compulsory licensees reporting.”); Kohn First Notice Comments at 9 (“Pass-

through licenses, at least insofar as they apply to digital transmission, should be eliminated.”).

745

RIAA Second Notice Comments at 19.

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U.S. Copyright Office Copyright and the Music Marketplace

IV. Analysis and Recommendations

It may be the very power of music that has led to its disparate treatment under the law.

The songs we enjoy in our early years resonate for the rest of our lives. Human beings

have a deep psychological attachment to music that often seems to approach a sense of

ownership; people want to possess and share the songs they love. Perhaps this passion

is one of the reasons music has been subject to special treatment under the law.

Regardless of what has animated our century-old embrace of government regulation of

music, the Copyright Office believes that the time is ripe to question the existing

paradigm and consider meaningful change. In recent years, we have seen piecemeal

efforts to address particular issues through focused legislation: there have been bills

directed to the lack of a terrestrial performance right for sound recordings, ratesetting

inequities, and payment for pre-1972 sound recordings. Each has targeted a specific

issue or issues within the existing system. In the current environment, however, these

sorts of limited proposals—standing alone—seem unlikely to generate broad enough

support to become law. It is for this reason, perhaps, that some members of Congress

have recently indicated interest in a more holistic approach.

746

How ambitious should any such approach be? As a number of commenters remarked

during the course of this study, if we were to do it all again, we would never design the

system that we have today. But as tempting as it may be to daydream about a new

model built from scratch, such a course would seem to be logistically and politically

unrealistic. We must take the world as we find it, and seek to shape something new

from the material we have on hand.

In this section, based on the information and commentary gathered in the study, the

Office analyzes critical areas of concern and—considering the record and merits of

disparate viewpoints—suggests ways to reshape our music licensing system to better

meet the demands of the digital era. Following a discussion of the role of government in

the music marketplace, the Office outlines a series of interrelated changes that might be

implemented to modernize our struggling system. The recommendations below seek to

capitalize on the value that existing institutions and methods could continue to provide

under an updated framework.

Rather than presenting a detailed plan, the Office’s recommendations should be

understood as high-level and preliminary in nature—more of a sketch than a completed

picture. It is also important that the proposals be contemplated together, rather than in

746

See, e.g., Daryl P. Friedman, MusicBus Gaining Speed as Members of Congress Climb On,

GRAMMY

NEWS (June 18, 2014), http://www.grammy.com/blogs/musicbus-gaining-speed-as-

members-of-congress-climb-on (noting support for omnibus legislation by Rep. Jerrold Nadler,

Rep. Kevin McCarthy and Rep. Nancy Pelosi).

133

U.S. Copyright Office Copyright and the Music Marketplace

isolation. The Office seeks to present a series of balanced tradeoffs among the interested

parties to create a fairer, more efficient, and rational system for all.

A. Guiding Principles

The Copyright Office appreciates and agrees with the four grounding principles that

were articulated by many during the course of this study, as discussed above. These are:

• Music creators should be fairly compensated for their contributions

• The licensing process should be more efficient

• Market participants should have access to authoritative data to identify and

license sound recordings and musical works

• Usage and payment information should be transparent and accessible to

rightsowners

As much as there may be consensus on these points, however, the opposite could be said

of stakeholders’ views as to how best to achieve them. Having considered the plethora

of issues that plague our current licensing system—and how they might practically be

addressed—the Office has identified some additional principles that it believes should

also guide any process of reform. These are:

• Government licensing processes should aspire to treat like uses of music alike

• Government supervision should enable voluntary transactions while still

supporting collective solutions

• Ratesetting and enforcement of antitrust laws should be separately managed and

addressed

• A single, market-oriented ratesetting standard should apply to all music uses

under statutory licenses

Each of these principles is explored below in the context of the Office’s overall

recommendations.

B. Licensing Parity and Fair Compensation

Questions of licensing parity and fair compensation are closely tied to the relative

treatment of music rights and rightsholders under the law.

747

The Office believes that

747

During the course of the study, the Office and others employed the term “platform parity” in

referencing the concern that existing licensing policies have a disparate impact on different

distribution platforms. The Office now adopts the broader term “licensing parity” in recognition

134

U.S. Copyright Office Copyright and the Music Marketplace

any overhaul of our music licensing system should strive to achieve greater consistency

in the way it regulates (or does not regulate) analogous platforms and uses. In addition

to rewarding those distribution models that are most resource-efficient and appealing to

consumers, evenhanded treatment will encourage more equitable compensation for

creators.

From today’s vantage point, at least, the impact of our current system on different

classes of copyright owners and users—favoring some while disadvantaging others—

seems to be more the product of historical happenstance than conscious design. To the

extent our policies require copyright owners to subsidize certain business models

through reduced royalties, as copyright owners claim, this is not the result of a present-

day judgment that it is a fair way to treat creators, or promotes the values of our

obligations on one business model over competing platforms.

The policy rationales that animated the creation of the section 115 compulsory license,

the PRO consent decrees, and even the section 112 and 114 framework for digital

performances, are now decades behind us. The Office believes that the current

widespread perception that the system is outmoded and broken may provide an

opportunity to review and rationalize the playing field.

1. Equitable Treatment of Rights and Uses

As suggested above, the Copyright Office believes that an important element of a robust

and fair music marketplace is to treat equivalent uses of sound recordings and musical

works—and competing platforms—alike, or as alike as can practically be achieved.

Musical Works Versus Sound Recordings a.

Which is more important, the song or the sound recording? “It all begins with a song,”

runs the oft-cited refrain;

748

but then again, the song is brought to life through a sound

recording. While there is, of course, no definitive answer to this question, as reflected

throughout this report, the law nonetheless treats sound recordings and musical works

differently.

In the case of noninteractive streaming uses, sound recordings are subject to compulsory

licensing at government-set rates. But apart from this, sound recordings are licensed by

their owners in the free market.

of the fact that the current licensing framework also disparately impacts different classes of

748

NSAI, http://www.nashvillesongwriters.com (last visited Jan. 18, 2015).

135

U.S. Copyright Office Copyright and the Music Marketplace

As for musical works, while synch uses (including consumer-generated videos) are not

subject to government oversight,

749

the other core segments of the market (mechanical

reproduction and performance uses) are regulated. As indicated above, a recurring

complaint from publishers and songwriters is that significantly higher rates are paid for

sound recordings than for musical works in the online world—whether the musical

work rates are set by the CRB or by one of the rate courts. At least some of this disparity

appears to arise from publishers’ inability to negotiate free from government constraint

where record companies can.

In keeping with the guiding philosophy that government should aspire to treat like uses

of music alike, the Office believes this should change, at least in the digital realm. That

is, where sound recording owners have the ability to negotiate digital rates in the open

market, so should owners of musical works.

Although the path to enabling this type of parity is complicated by the divergent

licensing frameworks for mechanical and performance rights on the musical work side,

the Office’s approach would offer a free market alternative to musical work owners, in

the form of an opt-out right, in the most significant areas where sound recording owners

enjoy unfettered digital rights—namely, interactive streaming uses and downloads.

And where sound recording owners are subject to statutory ratesetting—i.e., in the case

of noninteractive streaming—musical works would remain regulated. To further

promote uniformity of approach, as discussed below, the Office is recommending that

all music ratesetting activities—whether on the sound recording or musical work side—

take place before the CRB.

The Office believes that treating analogous uses alike in the digital environment is more

likely to yield equitable rates as between sound recordings and musical works—or will

at least make that goal more attainable.

750

This does not mean that the Office assumes

749

While synch uses by consumer video sites such as YouTube are not subject to compulsory

licensing, the degree of copyright owner control with respect to sites featuring user-posted

content is complicated by the safe harbor provisions of section 512, which limit such sites’

liability for hosting the content.

750

While the same argument can of course be made with respect to physical formats such as CDs

and vinyl records—where labels also have the freedom to negotiate and publishers do not—in

pursuing issues of fair compensation, stakeholders appear overwhelmingly to be concerned with

digital, rather than physical, uses. Likely this is because they are looking to the future, and the

future is digital. In addition, even though section 115 applies to both digital and physical uses,

the licensing situation for physical goods is somewhat distinguishable. Most physical goods are

in album format, and thus generate significantly higher mechanical revenues by virtue of their

inclusion of multiple songs. Additionally, because the first use of a musical work is not subject to

compulsory licensing, publishers have the right to demand a higher than statutory rate when

licensing the original recording—at least in theory; for reasons that are not entirely clear, it

appears that publishers almost never exercise this option. See RIAA First Notice Comments at 16

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U.S. Copyright Office Copyright and the Music Marketplace

that the rates for sound recordings and musical works necessarily should be equal.

Rather, the goal is to encourage evenhanded consideration of both rates by a single

body, under a common standard, to achieve a fair result.

The benefits of parallel treatment would not be limited to licensing at government-set

rates. Where a music publisher had chosen to opt out of the statutory license to

negotiate a direct deal, both the publisher and the sound recording owner would have

the same ability to make their case to the licensee. The licensee would then be in a

position to assess the value of each right and proceed accordingly, as happens in the

synch market today.

Finally, such an approach would also allow for the possibility of achieving an all-in

rate—and simplified rate structure—covering both sound recordings and musical works

for noninteractive uses under the section 112 and 114 licenses (including terrestrial

radio, which the Office proposes be brought under those licenses, as discussed below).

751

As suggested by the record labels, it might be possible for labels and publishers to agree

to a royalty split as between them—or have the split set in an initial phase of a CRB

proceeding—and then proceed together as allies in litigating the rates to be paid by

statutory licensees.

752

n.31 (stating that “the system should recognize the reality that songwriters and publishers have

always chosen to license first uses at the same royalty rates as other recordings and allow that to

happen by means of the same business processes”); see also Tr. at 251:07-252:04 (June 4, 2014)

(Brittany Schaffer, NMPA/Loeb & Loeb LLP) (explaining that standard record agreement

provisions, such as controlled composition clauses, often prevent publishers and songwriters

from negotiating first use rates higher than the compulsory rate). Unlike in the digital realm,

once the original recording is released by the record company, it is not nearly as common for

third parties to seek a mechanical license to reproduce and distribute that same recording in a

physical format. For these reasons—as well as the scant record before the Office concerning

physical product—the Office believes that the question of whether the proposed opt-out right

should extend to physical uses is perhaps best left for future consideration.

751

Both digital music services and record companies have urged the Office to consider such an

approach. DiMA First Notice Comments at 25 (noting that “[i]n an ideal world, services that

require a combination of musical work public performance rights, as well as reproduction and

distribution rights under Section 115, would be able to acquire such rights from a single licensing

source under a single statutory license and pay a single royalty to a common agent”); Spotify

First Notice Comments at 10 (stating that “[a] licensing regime in which public performance

rights and mechanical reproduction rights could be obtained from a single source or pursuant to

a single license is an interesting idea and could in theory lead to efficiencies”); RIAA First Notice

Comments at 16-17 (supporting single blanket license covering all rights in a song).

752

If such an approach were adopted, some thought would need to be given as to whether and

how a separate settlement would be accommodated on the part of the sound recording owners or

musical work owners once the ratesetting aspect of the proceeding was underway.

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U.S. Copyright Office Copyright and the Music Marketplace

Terrestrial Radio b.

In the case of terrestrial radio, federal law exempts what is currently a 17-billion dollar

industry

753

from paying those who contribute the sound recordings that are responsible

for its success.

754

Apart from being inequitable to rightsholders—including by curtailing

the reciprocal flow of such royalties into the United States—the exemption of terrestrial

radio from royalty obligations harms competing satellite and internet radio providers

who must pay for the use of sound recordings. In a world that is more and more about

performance and less about record sales, the inability to obtain a return from terrestrial

radio increases the pressure on paying sources. The market-distorting impact of the

terrestrial radio exemption probably cannot be overstated.

The Office has long supported the creation of a full sound recording performance right,

advocating for Congress to expand the existing right so it is commensurate with the

performance right afforded to other classes of works under federal copyright law.

755

one of the few remaining industrialized countries that does not recognize a terrestrial

radio performance right, the United States stands in stark contrast to peer nations.

756

her recent testimony before Congress, the Register of Copyrights described the

753

According to figures from the Radio Advertising Bureau, radio revenues have increased each

year since 2009, when revenues were $16,029,000,000, to 2013, when revenues totaled

$17,649,000,000—an increase of nearly 10%. RAB Revenue Releases, R

ADIO ADVERTISING BUREAU,

http://www.rab.com/public/pr/rev-pr.cfm?search=2013&section=press (click on “Annual Radio

Revenue Trends”) (last visited Jan. 22, 2015).

754

Although the Copyright Act exempts terrestrial performances of sound recordings, following

recent judicial decisions in California and New York—which interpreted those states’ laws as

supporting a right of public performance for sound recording owners—it is not clear that over-

the-air broadcasters enjoy a complete exemption under state law. See Flo & Eddie v. Sirius XM CA,

2014 U.S. Dist. LEXIS 139053; Capitol Records, LLC v. Sirius XM Radio Inc., No. BC520981 (order

regarding jury instruction); Flo & Eddie v. Sirius XM NY, 2014 U.S. Dist. LEXIS 166492. Although

those cases were brought against digital providers, the courts’ reasoning does not appear to be

limited to digital performance rights.

755

See, e.g., Performance Rights Act Hearing (statement of Marybeth Peters, Register of Copyrights);

Ensuring Artists Fair Compensation Hearing (statement of Marybeth Peters, Register of Copyrights);

Internet Streaming of Radio Hearing at 8-22 (statement of David O. Carson, General Counsel, U.S.

ERFORMANCE RIGHTS REPORT at 57-58.

756

See Public Performance Right for Sound Recordings, FUTURE OF MUSIC COALITION (Nov. 5, 2013),

https://www.futureofmusic.org/article/fact-sheet/public-performance-right-sound-recordings;

A2IM First Notice Comments at 8; Modern Works Music Publishing First Notice Comments at 7;

SoundExchange First Notice Comments at 16-17. Supporters of a more complete terrestrial

sound recording performance right point out that the U.S. position on this is “in contrast to

nearly every developed nation on the planet [with] notable exceptions includ[ing] Iran and North

Korea.” FMC First Notice Comments at 14; see also The Register’s Call for Updates Hearing at 3

(statement of Rep. Melvin L. Watt).

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U.S. Copyright Office Copyright and the Music Marketplace

terrestrial performance right issue as “ripe for resolution,”

757

recommending that any

congressional efforts to update the Copyright Act include a legislative answer.

758

Radio broadcasters argue that a sound recording performance royalty would unfairly

impose a “tariff” to subsidize the recording industry at the expense of broadcasters—in

their opinion, the limited performance right and lack of royalties in terrestrial radio have

not impacted the “growth or supremacy of the United States recording industry.”

759

This argument would seem to ring hollow, however, given the current challenges faced

by that industry.

Radio broadcasters also point to the promotional effect of traditional airplay on sales of

sound recordings as a reason for maintaining the status quo. Undoubtedly, sound

recording owners recognize value in radio airplay, in particular for new releases.

760

But

any such value must be considered and weighed in the context of the overall earnings of

the broadcast industry. Significantly, as consumer preferences shift away from music

ownership, the potential for sales is becoming less relevant, and the promotional value

of radio less apparent.

In this regard, the creation of a terrestrial sound recording performance right need not

overlook or negate the question of promotional value, because this factor can be taken

into account by a ratesetting authority, or in private negotiations, to arrive at an

appropriate royalty rate. Such an approach would appear to be a rational solution

because it seems fair to assume that a willing buyer and willing seller would do the

same.

761

757

The Register’s Call for Updates Hearing at 7 (statement of Maria A. Pallante, Register of

Copyrights and Director, U.S. Copyright Office); Maria A. Pallante, The Next Great Copyright Act,

36 C

OLUM. J. L. & ARTS 315, 320-21 (2013).

758

The Register’s Call for Updates Hearing at 63 (statement of Maria A. Pallante, Register of

Copyrights and Director, U.S. Copyright Office).

759

NAB First Notice Comments at 29.

760

Although the practice of “payola”—whereby record companies pay radio stations to play

certain recordings—has been banned, labels still devote resources to encouraging broadcasters to

perform their songs. See GAO

REPORT at 50 (explaining that although “payola” has been formally

outlawed unless the station announces any arrangements to play songs in exchange for

consideration, it is common industry practice for record companies to employ independent

promoters).

761

Interestingly, despite the lack of legal recognition for such a right, there has been forward

movement on this issue in the private marketplace. Media conglomerate iHeartMedia (formerly

Clear Channel)—which offers both terrestrial and streamed radio—has entered into voluntary

license agreements with WMG and a number of smaller record labels that cover both digital and

terrestrial performance rights (with the digital rates apparently more favorable to iHeartMedia

than those established by the CRB). See Christman, Here’s Why Warner Music’s Deal with Clear

139

U.S. Copyright Office Copyright and the Music Marketplace

Pre-1972 Sound Recordings c.

Another area where the law diverges in the way it treats sound recordings and musical

works is the lack of federal protection for pre-1972 sound recordings, many of which

remain commercially valuable. This, too, impedes a fair marketplace. Satellite and

internet radio services appear to rely heavily on pre-1972 recordings in curating their

playlists, presumably because (at least until recent court rulings) these selections have

been viewed as free from copyright liability on the sound recording side.

762

At the same

time, the owners of the musical works embodied in these sound recordings are paid for

the same uses.

The Office is of the view that pre-1972 recordings should be brought under the

protection of federal copyright law. Such a change would serve the interests of licensing

parity by eliminating another market distortion. In addition, it would allow for a federal

compensation mechanism for the artists responsible for pre-1972 works.

In 2009, Congress instructed the Office to conduct a study on the “desirability and

means” of extending federal copyright protection to pre-1972 sound recordings.

763

After

considering input from stakeholders, the Office concluded that pre-1972 sound

recordings should be brought under federal copyright law with the same rights,

exceptions, and limitations as sound recordings created on or after February 15, 1972.

764

In the Office’s view, full federalization of pre-1972 sound recordings (with special

provisions to address ownership issues, terms of protection, and registration) would

improve the certainty and consistency of copyright law, encourage more preservation

Channel Could be Groundbreaking for the Future of the U.S. Music Biz (Analysis); Sisario, Clear

Channel-Warner Music Deal Rewrites the Rules on Royalties. Reportedly, iHeartMedia was

motivated to do this by its desire to have a more predictable cost structure to grow the digital

side of its business. Id. Such a step may point to the potential for broader industry compromise

on this issue.

762

Tr. at 183:07-18 (June 24, 2014) (Jim Mahoney, A2IM) (“One only need to turn on Sirius XM

and see the many stations that programmed fully with pre-1972 copyright songs, recordings and

conclude that they still have value to listeners. They still want to hear those songs a lot. To

programmers who program multiple stations there’s a 40’s station, a 50’s station, a 60’s station.

There’s classic rock, all the pre-1972 sound recordings. So, the public still values them,

corporations still value them. They should still maintain a value for the recording artists.”).

763

Specifically, Congress directed the Office to discuss: “(1) the effect that federal protection

would have with respect to the preservation of pre-1972 sound recordings; (2) the effect that

federal protection would have with respect to providing public access to the recordings; and (3)

the impact that federal protection would have on the economic interests of right holders of the

recordings” and to provide appropriate recommendations. P

RE-1972 SOUND RECORDINGS REPORT

at vii.

764

Id. at viii.

140

U.S. Copyright Office Copyright and the Music Marketplace

and access activities, and provide the owners of pre-1972 sound recordings with the

benefits of any future amendments to the Copyright Act.

765

The Office has not changed its mind. Indeed, since the Office issued its 2011 report,

there have been significant developments under both California and New York state law

which underscore the need for a unified federal approach to sound recordings. As a

result of lawsuits brought by pre-1972 sound recording owners against Sirius XM and

Pandora, there have been trial court decisions in California and New York upholding

claims that performances of the plaintiffs’ sound recordings in those jurisdictions are

protected under applicable state law.

766

Subject to any further judicial developments,

this means that the defendant services need to obtain licenses from sound recording

owners to perform the recordings. But because the requirement to do so is based on

state, rather than federal law, users may not rely upon the section 112 and 114 licenses

for this purpose.

The legal question of state protection of pre-1972 sound recording performance rights

will undoubtedly continue to percolate in other states as well.

767

In addition, there is the

significant related question of whether and how the pre-1972 rulings may be applied to

performances by terrestrial broadcasters, which of course currently enjoy an exemption

under federal law. This aspect of the story has yet to unfold.

In the last Congress, SoundExchange, joined by others, pursued legislation known as the

RESPECT Act that would expand the jurisdiction of that organization to collect royalties

for pre-1972 performances and provide a safe harbor from state liability for paying

services.

768

But this proposed amendment to federal law would not offer the full

panoply of federal copyright protection to pre-1972 rightsowners, nor would it allow for

application of the DMCA safe harbors or rights-balancing exceptions such as fair use. In

addition, there are important policy considerations relating to the preservation of older

works and access to “out-of-print” recordings still subject to state protection that the

RESPECT Act does not address. For these reasons, while the Copyright Office

recognizes the potential value of enacting a relatively expedient fix to make sure older

artists get paid and to eliminate liability concerns of digital services seeking to exploit

765

Id. at ix-x.

766

See Flo & Eddie v. Sirius XM CA, 2014 U.S. Dist. LEXIS 139053; Capitol Records, LLC v. Sirius XM

Radio Inc., No. BC520981 (order regarding jury instructions); Flo & Eddie v. Sirius XM NY, 2014

U.S. Dist. LEXIS 166492, reconsideration denied, 2014 U.S. Dist. LEXIS 174907.

767

Paul Resnikoff, What the pre-1972 Decision Really Means for the Future of Radio . . . ., DIGITAL

MUSIC NEWS (Oct. 13, 2014), http://www.digitalmusicnews.com/permalink/2014/10/13/pre-1972-

decision-really-means-future-radio-2 (noting pending litigation by Flo & Eddie (of the band The

Turtles) against Sirius XM in Florida, in addition to suits in California and New York).

768

RESPECT Act § 2.

141

U.S. Copyright Office Copyright and the Music Marketplace

pre-1972 recordings, it continues to believe that full federalization remains the best

alternative.

2. Consistent Ratesetting Standards

Where the government has stepped in to establish rates for the use of music, it has

likewise acted in an inconsistent fashion. While in some cases the law provides that the

ratesetting authority should attempt to emulate the free market, in other cases it imposes

a more policy-oriented approach.

769

In this regard, the ratesetting standards under the section 112 and 114 licenses have been

a persistent source of unhappiness for both music owners and users. This is hardly

surprising, as these licenses prescribe different rate standards for competing platforms—

internet radio versus satellite radio—thus allowing both sides to complain.

Satellite radio and “pre-existing” subscription services (such as those provided through

cable television) are able to benefit from the four-factor section 801(b)(1) test, which

allows the CRB to ponder broader concerns than what negotiating parties might

consider in the marketplace—for example, whether a contemplated rate will result in

“disruptive impact on the structure of the industries involved and on generally

prevailing industry practices.”

770

Many interpret the section 801(b)(1) language as

enabling the ratesetting body to protect the vested interests of licensees by establishing

rates lower than what would (at least theoretically) prevail in the free market.

Rates for the reproduction and distribution of musical works in digital and physical

formats are also set under the more policy-oriented 801(b)(1) standard. This is a

significant point of contention for music publishers and songwriters, who have been

lobbying for legislation to substitute the willing buyer/willing seller standard.

771

By contrast, rates paid by internet radio services are set by the CRB according to a

“willing buyer/willing seller” rate standard. Most perceive the willing buyer/willing

seller standard to be more market-oriented in its approach.

772

But internet radio

providers have twice taken their case to Congress to override the rates set by the CRB

769

See “Existing Ratesetting Framework” chart, Appendix D, for a depiction of the current

ratesetting standards and bodies.

770

17 U.S.C. § 801(b)(1)(D).

771

See SEA, H.R. 4079.

772

See EMF First Notice Comments at 6, 8 n.14 (noting negotiated agreements are rare for

webcasters, but noncommercial rates were successfully negotiated before a final decision in

Digital Performance Right in Sound Recordings and Ephemeral Recordings, 76 Fed. Reg. 13,026

(Mar. 9, 2011)).

142

U.S. Copyright Office Copyright and the Music Marketplace

under that rubric,

773

and Congress has given them the opportunity to negotiate

substitute agreements with SoundExchange.

774

As for public performance rights in musical works, by virtue of the consent decrees,

ASCAP and BMI are subject to a “reasonable fee” approach, which seeks to approximate

hypothetical “fair market value.”

775

Though the term “reasonable fee” is not defined in

either consent decree, each places the burden of proof on the PRO to establish that its

proposed rates are reasonable.

776

The PROs attempt to meet this burden by offering

negotiated rates as benchmarks, economic evidence that may or may not be accepted by

the court after considering its relevance—often through the lens of quasi-antitrust

analysis.

777

While there are those who might argue that the particular wording of a discretionary

rate standard will not have much impact on a results-oriented tribunal, there is at least

some evidence to the contrary. For example, in 2008, in establishing rates for satellite

radio services, the CRB found it “appropriate to adopt a rate . . . that is lower than the

upper boundary most strongly indicated by marketplace data,” stating that they did so

“in order to satisfy 801(b) policy considerations related to the minimization of disruption

that are not adequately addressed by the benchmark market data alone.”

778

In any

event, there appears to be a shared perception among many industry participants—both

those that chafe at the section 801(b)(1) standard and those that like it—that the standard

yields lower rates.

779

773

Small Webcaster Settlement Act of 2002, Pub. L. No. 107-321, 116 Stat. 2780 (2002) (codified as

amended at 17 U.S.C. § 114(f) (2010)); Webcaster Settlement Act of 2008, Pub. L. No. 110-435, 122

Stat. 4974 (2008) (codified as amended at 17 U.S.C. § 114(f) (2010)).

774

17 U.S.C. § 114(f)(3)(B).

775

Pandora Ratesetting, 6 F. Supp. 3d at 353-54; see also BMI v. DMX, Inc., 726 F. Supp. 2d 355, 356

(S.D.N.Y. 2010) (citing “well-established” reasonable fee approach to determine fair market

value).

776

BMI v. DMX, 683 F.3d at 45 n.14 (noting in both the ASCAP and BMI consent decrees, the

burden of proof is on the PRO to establish the reasonableness of the fee it seeks).

777

United States v. BMI, 316 F. 3d 189, 194 (2d Cir. 2003) (“This determination [of whether a rate is

reasonable] is often facilitated by the use of a benchmark—that is, reasoning by analogy to an

agreement reached after arms’ length negotiation between similarly situated parties.”); see also

ASCAP v. MobiTV, 681 F. 3d at 82 (“In [setting a rate], the rate-setting court must take into

account the fact that ASCAP, as a monopolist, exercises market-distorting power in negotiations

for the use of its music.”).

778

Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital

Audio Radio Services, 73 Fed. Reg. 4080, 4097 (Jan. 24, 2008).

779

See, e.g., DiMA First Notice Comments at 33-34 (noting relatively higher rates under the willing

buyer/willing seller standard); NMPA & HFA First Notice Comments at 27 (“Pandora . . . paid

143

U.S. Copyright Office Copyright and the Music Marketplace

The Office believes that all government ratesetting processes should be conducted under

a single standard, especially since the original justifications for differential treatment of

particular uses and business models appear to have fallen away. There is no longer a

threatened piano roll monopoly, and satellite radio is a mature business. Further,

however that single rate standard is formulated—i.e., whether it is articulated as

“willing buyer/willing seller” or “fair market value”—it should be designed to achieve

to the greatest extent possible the rates that would be negotiated in an unconstrained

market. To the extent that it enumerates specific factors, they should be ones that might

reasonably be considered by copyright proprietors and licensees in the real world. In

the Office’s view, there is no policy justification to demand that music creators subsidize

those who seek to profit from their works.

Under such a unified standard, the CRB or other ratesetting body would be encouraged

to consider all potentially useful benchmarks—including for analogous uses of related

rights (e.g., fees paid for the comparable use of sound recordings when considering

musical work rates

780

)—in conducting its analysis. But again, it should take into account

only those factors that might be expected to influence parties who negotiated rates in the

open market. These might include, for example, the substitutional impact of one model

on other sources of revenue, or whether a service may promote sales of sound

recordings or musical works through other channels.

781

But upon arriving at rates

believed to reflect what would be agreed in the open market, those rates would not be

discounted on the basis of abstract policy concerns such as “disruptive” impact on

48% of its revenue to artists and labels using the willing buyer willing seller standard and only

4% of its revenue to publishers and songwriters using rates set by the rate court.”); Spotify First

Notice Comments at 7.

780

But see Digital Performance Right in Sound Recordings and Ephemeral Recordings, 72 Fed.

Reg. 24,084, 24,094-95 (May 1, 2007) (musical work benchmark rejected as being “flawed” for

sound recordings because the sellers were different and selling different rights, use of the

benchmark would ignore the different investments and incentives of the each seller, and the

record contained ample empirical evidence that the markets were not necessarily equivalent);

Pandora Ratesetting, 6 F. Supp. 3d at 333, 366-67 (court declined to use royalty rates for sound

recordings as a benchmark, explaining, “[t]he disparity between rates for the public performance

of compositions versus sound recordings does not exist for most of ASCAP’s revenue streams

since . . . the need to acquire sound recording licenses only applies to services who conduct

digital audio transmissions”; for those digital audio transmissions, whose rates are set by the

CRB, there is a “statutory prohibition on considering sound recording rates in setting a rate for a

license for public performance of a musical work”; and otherwise “the record is devoid of any

principled explanation given . . . why the rate for sound recording rights should dictate any

change in the rate for composition rights”).

781

As expressed in section 114, the willing buyer/willing seller standard includes consideration of

several specific factors, including these. See 17 U.S.C. § 114(f)(2)(B).

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U.S. Copyright Office Copyright and the Music Marketplace

prevailing industry practices or solicitude for existing business models notwithstanding

their competitive viability in the marketplace.

C. Role of Government in Music Licensing

Government regulation of music has focused on the interrelated concerns of access,

pricing and competition. As noted above, section 115—the first compulsory license in

our copyright law—was enacted to prevent a single piano roll company from exercising

exclusive control over song copyrights. The PRO consent decrees are the result of the

government’s attempt to balance the efficiencies of collective licensing with concerns

about anticompetitive conduct. More recently, Congress chose to extend the public

performance right for digital uses of sound recordings on the condition that certain of

those uses would be subject to compulsory licensing under sections 112 and 114 of the

As a result of these policy determinations, an administrative tribunal, the CRB, sets the

fees paid for the reproduction and distribution of musical works, as well as the royalties

due for radio-style digital performance of sound recordings. Two federal judges in New

York City are responsible for establishing the fees for the public performance of musical

works across traditional and digital platforms. For better or worse, these decades-old

regimes are deeply embedded in our licensing infrastructure.

782

Viewed in the abstract, it is almost hard to believe that the U.S. government sets prices

for music. In today’s world, there is virtually no equivalent for this type of federal

intervention—at least outside of the copyright arena.

783

The closest example is the

retransmission by cable and satellite providers of copyrighted television programming

(including the music embodied in that programming), which is also subject to

compulsory licensing under the Copyright Act and government-set rates.

784

But

782

Notably, in the deliberations leading to the adoption of the 1976 Act, then Register of

Copyrights Abraham L. Kaminstein recommended elimination of the section 115 compulsory

license, concluding that the underlying concerns about a publisher monopoly were no longer

relevant. See G

ENERAL REVISION OF COPYRIGHT REPORT at 36. Publishers did not ultimately

pursue that opportunity, however, instead agreeing to maintain the compulsory license in

exchange for a statutory rate hike from 2 to 2.75 cents per use. See Music Licensing Reform Hearing

(statement of Marybeth Peters, Register of Copyrights); S.

REP. NO. 94-473, at 88-92.

783

Outside of the copyright context, rare instances of government price-fixing involve

commodities, not differentiated goods. The Federal Energy Regulatory Commission conducts a

ratesetting process for interstate transmission of electricity and natural gas, see 16 U.S.C. § 824d-e;

15 U.S.C. § 717c-d, and the United States Department of Agriculture issues federal milk

marketing orders that set minimum (not maximum) prices for the sale of milk in most regions of

the United States, see 7 U.S.C. § 608c(5).

784

17 U.S.C. §§ 111, 119, 122; see also U.S. COPYRIGHT OFFICE, SATELLITE TELEVISION EXTENSION AND

LOCALISM ACT: § 302 REPORT 129-40 (2011), available at http://www.copyright.gov/reports/

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U.S. Copyright Office Copyright and the Music Marketplace

retransmission rights represent a much more limited segment of the overall revenues for

the television industry than do the core music markets subject to government

ratesetting, and even there, broadcasters are permitted separately to negotiate non-

government-controlled fees for access to the signals that carry the copyrighted works.

785

1. Antitrust Considerations

As explained above in discussing the section 115 statutory license and PRO consent

decrees, much of the rationale—indeed, the original rationale—for government

regulation of the music marketplace revolves around antitrust concerns. The

government has long wanted to ensure that the market is not unduly influenced by

monopoly power. Thus, Congress’ uneasiness with the dominant position of the

Aeolian piano roll company in 1909 led it to enact a compulsory license for musical

works so others could compete with that company.

Concerns about potential monopoly effects are heightened when would-be competitors

decide on the prices to be charged for products that are or are required to be purchased

together, as is the case when musical works are licensed by multiple owners on a blanket

basis through ASCAP or BMI. The government, however, including the Supreme Court,

has acknowledged the social benefits of this type of collective blanket licensing, and has

endorsed it under a “rule of reason” approach rather than finding it per se unlawful.

786

But the government has also, since the World War II era, subjected ASCAP and BMI to

extensive regulation under their respective consent decrees.

It is worth noting that the longevity of these two decrees represents a rather extreme

exception to the modern DOJ guidelines which, since 1979, have required that such

decrees terminate, generally after a period of no longer than ten years.

787

More recently,

in March 2014, the DOJ announced a policy to facilitate the “fast track” review and

termination of most perpetual or “legacy” decrees.

788

Under that policy, the DOJ will

section302-report.pdf (“STELA REPORT”) (recommending ways in which the cable and satellite

compulsory retransmission licenses might be phased out).

785

See 47 U.S.C. § 325 (defining retransmission consent rights).

786

BMI v. CBS, 441 U.S. at 23-25 (holding that the blanket license should be subject to rule of

reason analysis and remanding to lower courts to apply that analysis); CBS v. ASCAP, 620 F.2d at

932 (on remand from Supreme Court, sustaining blanket license under rule of reason analysis

because CBS had failed to prove the non-availability of alternatives to the blanket license); Buffalo

Broad. v. ASCAP, 744 F.2d at 926-32 (sustaining blanket license under rule of reason analysis in

context of local television stations).

787

U.S. DOJ, ANTITRUST DIV., ANTITRUST DIV. MANUAL III 146-47 (5th ed. 2014), available at http://

www. justice.gov/atr/public/divisionmanual/atrdivman.pdf.

788

Id. (explaining that the DOJ’s adoption of a policy that favors sunset provisions was “based on

a judgment that perpetual decrees were not in the public interest”). In addition to policy

146

U.S. Copyright Office Copyright and the Music Marketplace

“advise courts that pre-1980 ‘legacy’ decrees, except in limited circumstances, are

presumptively no longer in the public interest.”

789

The DOJ has suggested, however,

that among those “limited circumstances” is “when there is a long-standing reliance by

industry participants on the decree.”

790

The revised DOJ policy would thus appear to

exclude the PRO decrees.

The word “monopoly” came up many times in the written and oral presentations of

participants in this study in discussing the continuing significance of the decrees and

antitrust oversight. But it is important to understand that there are two distinct types of

“monopoly” being referenced, and each requires separate analysis.

The first type of “monopoly” refers to alleged anticompetitive practices on the part of

the PROs, and also sometimes of the major publishers and record labels with significant

market share. Here the concern is that licensees—for example, a television network or

online service—have insufficient leverage to negotiate appropriate licensing fees with

the licensor.

791

Excessive market power is the linchpin of antitrust analysis, whether in a

government-initiated enforcement action or private litigation;

792

typically, however—and

as discussed below in connection with the Pandora litigation—the remedies for civil

concerns, there may be some interesting due process questions concerning the length of the

consent decrees.

789

Press Release, U.S. DOJ, Antitrust Div., Antitrust Division Announces New Streamlined

Procedure for Parties Seeking to Modify or Terminate Old Settlements and Litigated Judgments

(Mar. 28, 2014), available at http://www.justice.gov/atr/public/press_releases/2014/304744.pdf

(noting that “[s]ince 1980, there have been significant changes in markets and technology and

substantial changes in antitrust law”).

790

Id.

791

Interestingly, the Office heard considerably less about the market power of large technology

companies or other dominant distributors of music and whether that poses similar concerns. But

see, e.g., MMF & FAC Second Notice Comments at 21-22 (noting the “market power of a few tech

giants”).

792

See U.S. DOJ & FTC, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS:

PROMOTING INNOVATION AND COMPETITION 110 (2007), available at http://www.justice.gov/atr/

public/hearings/ip/222655.pdf (“A

NTITRUST ENFORCEMENT AND IP RIGHTS REPORT”) (“Whether the

legal analysis applied to intellectual property bundling is some form of the per se rule or the

more searching rule of reason, a plaintiff will have to establish that a defendant has market

power in the tying product.”); cf. Illinois Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 42-43 (2006)

(explaining the following about tying arrangement involving patented products: “While some

such arrangements are still unlawful, such as those that are the product of a true monopoly or a

market wide conspiracy, . . . that conclusion must be supported by proof of power in the relevant

market rather than by a mere presumption thereof.”); see also H

ERBERT HOVENKAMP, FEDERAL

ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS PRACTICE 2 (4th ed. 2011) (“An important

goal of antitrust law—arguably its only goal—is to ensure that markets are competitive.”).

147

U.S. Copyright Office Copyright and the Music Marketplace

antitrust violations do not involve long-term government price controls. Such remedies

instead tend to focus on injunctive relief to address the particular anticompetitive

behavior in question and/or the payment of one-time fines.

793

The second type of monopoly referenced by participants is a wholly different one,

namely, the limited “monopoly” in an individual work that is conferred by virtue of the

exclusive rights granted under the Copyright Act. Even though it is not a product of

collective activity, these exclusive rights probably play no less of a significant role in

debates about music licensing. Many licensees—for example, large online providers—

believe they must have access to complete, or virtually complete, catalogs of sound

recordings and musical works in order to compete in the marketplace. A compulsory

license—at least in theory—can make that possible.

But compulsory licensing removes choice and control from copyright owners who seek

to protect and maximize the value of their assets. An increasingly vocal number of

or otherwise objectionable digital services, in part because such services may cannibalize

sales or higher-paying subscription models. Taylor Swift’s widely publicized decision to

pull her catalog from the leading streaming provider Spotify because she did not want

her songs available on Spotify’s free tier of service has been widely reported, and other

artists appear to be following suit.

794

Similarly, artist manager Irving Azoff of GMR has

reportedly threatened YouTube with a billion-dollar lawsuit if it does not remove his

clients’ repertoire from their site.

795

In order to take such action—and demand higher

793

See, e.g., Farrell Malone & J. Gregory Sidak, Should Antitrust Consent Decrees Regulate Post-

Merger Pricing?, 3 J.

COMPETITION L. & ECON. 471, 477 (2007) (explaining that, in expressing its

preference for structural remedies over conduct remedies in situations involving anticompetitive

merger, the DOJ “explicitly criticizes price agreements as a component of consent decrees” and

that the “[DOJ] disfavors using consent decrees to fix a price or an allowable range of prices for

the post-merger firm”); see also H

ERBERT HOVENKAMP, MARK D. JANIS, MARK A. LEMLEY &

CHRISTOPHER R. LESLIE, IP AND ANTITRUST: AN ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO

INTELLECTUAL PROPERTY LAW 22-62 (2d ed. Supp. 2013) (“As a general matter, antitrust should not

favor solutions that turn the federal courts into price control agencies.”).

794

Dickey, Taylor Swift on 1989, Spotify, Her Next Tour and Female Role Model (quoting Taylor Swift:

“I think that people should feel that there is a value to what musicians have created, and that’s

that.”); see also Mitchell Peters, Big Machine’s Scott Borchetta Explains Why Taylor Swift Was Removed

From Spotify, B

ILLBOARD (Nov. 8, 2014), http://www.billboard.com/articles/news/6312143/big-

machine-scott-borchetta-explains-taylor-swift-1989-removal-from-spotify-nikki-sixx (quoting Big

Machine Label Group CEO Scott Borchetta: “We determined that her fan base is so in on her, let’s

pull everything off of Spotify, and any other service that doesn’t offer a premium service . . . Now

if you are a premium subscriber to Beats or Rdio or any of the other services that don’t offer just a

free-only, then you will find her catalogue.”); Bogursky, Taylor Swift, Garth Brooks and other artists

lead the fight against Spotify.

795

Gardner, Pharrell Williams’ Lawyer to YouTube: Remove Our Songs or Face $1 Billion Lawsuit.

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U.S. Copyright Office Copyright and the Music Marketplace

compensation—the use cannot be subject to mandatory licensing.

796

But for those under

a compulsory license or a consent decree, it is not possible to say no.

In this regard, it is interesting to compare music to other types of copyrighted works, for

example, television shows and movies. Like music, a particular television show or

movie may not be a fully satisfying substitute for another—or a substitute at all. But

consumers do not expect to be able to access every television show through Hulu, or

every movie through Netflix. It is understood that different services can and will offer

different content.

Even within the music universe, the law treats sound recordings and musical works

differently with respect to the right to say no. We seem to accept the fact that a licensee

offering downloads or interactive streaming will need to negotiate deals with major and

independent record labels, or forgo the content. On the musical work side, however,

government policy has subjected these same uses to government-mandated licensing.

Even given greater latitude to make licensing decisions, it would seem that musical

work owners would be strongly incentivized to license services that they believed

would pay a reasonable return. This seems to be true of the record labels, which have

authorized a wide range of download and interactive music services outside of a

mandatory licensing regime.

797

But the labels are not required to license services that

show little promise or value. Why is this demanded of music publishers and

songwriters?

The Office believes that the question of whether music copyright owners should be able

to choose whether to agree to a license is an especially critical one. Understandably,

those seeking permission to use music appreciate the security of compulsory licensing

processes and certainty of government-set rates—as buyers of content likely would in

any context.

798

But modern competition law does not view the rights enjoyed by

explained, “antitrust doctrine does not presume the existence of market power from the

mere presence of an intellectual property right.”

799

796

Notably, Swift’s sound recordings are not subject to compulsory licensing when used for

interactive services, and GMR’s clients—who are not represented by ACSCAP or BMI—have

asserted rights not covered by the consent decrees.

797

RIAA First Notice Comments at 30 n.43; see also Find a Music Service, WHYMUSICMATTERS.COM,

http://whymusicmatters.com/find-music (last visited Feb. 2, 2015) (listing licensed music

services).

798

For example, in a 2011 study conducted by the Copyright Office, cable and satellite operators

operating under the section 111, 119 and 122 compulsory licenses expressed strong opposition to

the possibility of phasing them out. STELA

REPORT at 8.

799

ANTITRUST ENFORCEMENT AND IP RIGHTS REPORT at 2.

149

U.S. Copyright Office Copyright and the Music Marketplace

As a general matter, the Office believes that certain aspects of our compulsory licensing

processes can and should be relaxed. But this does not mean that antitrust concerns

should be overlooked. Many pertinent considerations have been raised in the DOJ’s

parallel consideration of the ASCAP and BMI consent decrees. The Office strongly

endorses that review, and—in light of the significant impact of the decrees in today’s

performance-driven music market—hopes it will result in a productive reconsideration

of the 75-year-old decrees. At the same time, the Office observes that it is Congress, not

the DOJ, that has the ability to address the full range of issues that encumber our music

licensing system, which go far beyond the consent decrees.

2. The PROs and the Consent Decrees

Since the first part of the twentieth century, ASCAP and BMI have provided critical

services to songwriters and music publishers on the one hand, and myriad licensees on

the other, in facilitating the licensing of public performance rights in musical works.

SESAC, though smaller, has also played an important role in this area, administering

performance rights for a select group of clients. More recently, GMR has come onto the

scene as a fourth contender in the performance rights arena, with an impressive client

roster. Each of these organizations offers repertoire-wide—or “blanket”—licenses for

the musical works they represent, with the four together essentially representing the

entire spectrum of musical works available for licensing in the U.S., including many

foreign works. Blanket licenses are available for a wide range of uses, including

terrestrial, satellite, and internet radio, on-demand music streaming services, website

and television uses, the performance of recorded music in bars, restaurants, and other

commercial establishments, and live performances as well.

As detailed above, both ASCAP and BMI, unlike their smaller competitors SESAC and

GMR, are subject to continuing consent decrees. The decrees, overseen by federal

district courts in New York City (typically referred to as the “rate courts”), were last

updated before the rise of licensed digital music services—in the case of BMI, in 1994,

and in the case of ASCAP, in 2001. The consent decrees impose significant government-

mandated constraints on the manner in which ASCAP and BMI may operate. Among

other things, ASCAP and BMI are required to grant a license to any user who requests

one, without payment of royalties until a royalty rate is set by negotiation or following

litigation before the rate court. Under its decree, ASCAP may not issue mechanical

licenses for the reproduction or distribution of musical works; while the BMI consent

decree is silent on this point, BMI has not itself issued mechanical licenses. Except to the

extent a licensee seeks a narrower license—such as a “per-program” license or a blanket

license with “carveouts” for directly licensed works—ASCAP and BMI are required to

license all works in their repertoire.

150

U.S. Copyright Office Copyright and the Music Marketplace

Pandora Analysis a.

Publisher Withdrawals

In 2013, as part of pending ratesetting litigation with the internet radio service Pandora,

both the ASCAP and BMI rate courts—applying slightly different logic—interpreted the

consent decrees as prohibiting music publishers from withdrawing authorization to

license their songs for particular types of uses.

800

Major music publishers had sought to

withdraw their “new media” (i.e., online and mobile usage)

801

rights from the PROs in an

effort to negotiate with Pandora directly to achieve higher rates than what they believed

they would otherwise be awarded in court.

802

Following their decisions to withdraw, EMI agreed to a rate equivalent to the existing

ASCAP rate of 1.85% for services like Pandora (but without deductions for ASCAP’s

fees); Sony/ATV negotiated for a prorated share of an industrywide rate of 5% (which

translated to a 2.28% implied rate for ASCAP); and UMG obtained a prorated share of

7.5% (or a 3.42% ASCAP rate).

803

Subsequently, however, the two rate courts held that

these publishers could not selectively withdraw specific rights from ASCAP or BMI to be

negotiated independently. Instead, the publishers had to be “all in” or “all out.”

804

In the wake of these decisions, the three publishers who had sought to withdraw (now

two, as Sony/ATV has since become affiliated with EMI) are, for the moment, back “in,”

and ASCAP and BMI have petitioned the DOJ to modify their decrees to allow these

sorts of partial withdrawals by their publisher members. With the petitions pending,

however, both Sony/ATV and UMPG—which together represent some 50% of the music

publishing market

805

—have made it clear that they may well choose to withdraw all

rights from the PROs in the future.

800

In re Pandora, 2013 WL 5211927, at *11; BMI v. Pandora, 2013 WL 6697788, at *5.

801

”New media” services are those available by means of the internet, a wireless mobile

telecommunications network, and/or a computer network. In re Pandora, 2013 WL 5211927, at *2;

BMI v. Pandora, 2013 WL 6697788, at *2.

802

To some degree, the move to withdraw was also likely spurred by technological evolution.

Unlike traditional media such as broadcast radio stations, digital providers are equipped to track

and report each use of a musical work (for example, each time a song is streamed to an individual

subscriber) and thus provide full census reporting to a copyright owner. When such census

reporting is available, there is no need for an intermediary organization such as a PRO to survey

or sample the service to allocate royalty payments among songwriters; a publisher has the means

to allocate the royalties itself. Thus, it is more feasible for the publisher to self-administer a

directly negotiated license.

803

Pandora Ratesetting, 6 F. Supp. 3d at 330, 339-40, 355.

804

In re Pandora, 2013 WL 5211927, at *11; BMI v. Pandora, 2013 WL 6697788, at *5.

805

Christman, First-Quarter Music Publishing Rankings: SONGS Surges Again.

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The specter of across-the-board withdrawal by the major publishers from ASCAP and

BMI is concerning to many in the music sector. The three major publishers—Sony/ATV,

UMPG, and Warner/Chappell—together represent approximately 63% of the U.S. music

publishing market,

806

and the songwriters they in turn represent (as well as the

publishers themselves) currently license the vast majority of their performance rights

through the PROs.

807

The Office agrees that the full withdrawal of leading publishers

from ASCAP and BMI would likely significantly disrupt the music market by

fundamentally altering the licensing and payment process for the public performance of

musical works without an established framework to replace it, at least in the short run.

On the user side, as might be predicted, many strongly prefer the government-

supervised PRO system over the unregulated negotiation of rights, and oppose the

movement toward withdrawal. While many licensees—such as commercial radio and

television stations represented by RMLC and TMLC—are successful in negotiating

(rather than litigating) rates with ASCAP and BMI under the current regime, it is

reassuring to them to know that they can turn to a federal court if they view it as a better

option. Like the radio and television sectors, digital services, including Pandora (whose

recent rate court litigation is discussed below), also strongly favor government oversight

of music publishers’ licensing practices.

Notably, although SESAC is not subject to a consent decree, television and radio

licensees recently sued that organization in separate actions for alleged anticompetitive

licensing practices.

808

SESAC settled the television case by agreeing to reimburse the

television station plaintiffs almost $60 million in licensing fees

809

(the radio case remains

pending). Without opining on their merits, the Office observes that these cases illustrate

the importance and corrective potential of private enforcement actions outside of the

consent decree environment.

Concerns about the impact of large publisher withdrawals are not limited to the user

side. Songwriters, too, are apprehensive. According to longstanding industry practice,

songwriters are paid their “writer’s share” of performance royalties directly by the

PROs; these monies do not flow through the publishers. In a world of direct licensing,

publishers would not be required to adhere to established standards for the reporting

and payment of royalties, such as those employed by ASCAP and BMI. Songwriters

806

See id.

807

See Sisario, Pandora Suit May Upend Century-Old Royalty Plan.

808

See Meredith Corp., 1 F. Supp. 3d 180; RMLC v. SESAC, 29 F. Supp. 3d 487.

809

See Memorandum of Law in Support of Plaintiffs’ Unopposed Motion for Preliminary

Approval of Settlement 1-2, Meredith Corp. v. SESAC, LLC., 1 F. Supp. 3d 180 (S.D.N.Y. 2014) (No.

09-cv-9177); Meredith Corp. v. SESAC, LLC, No. 09-cv-9177 (S.D.N.Y. Oct. 31, 2014) (order granting

preliminary approval of settlement).

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worry that direct licensing could thus result in a system with much less accountability

and transparency than they currently enjoy under the PROs.

There is a particular concern about publishers’ treatment of advance payments and

licensing fees by music services, as such monies may not be accounted for by the

publisher in a transparent fashion. This, in turn, raises a question in songwriters’ minds

as to whether withdrawal would exacerbate this problem.

810

In addition, apart from any

contractual issues in relation to American songwriters, non-U.S. writers who assign their

rights exclusively to their local societies—which in turn enter into contractual

relationships with ASCAP and BMI to collect royalties on their behalf in the United

States—do not see how they can properly be subject to U.S. publisher withdrawal.

811

top of all this, a precipitous decline in overall royalty throughput would almost certainly

result in markedly increased—and perhaps prohibitive—administrative costs for those

who remained affiliated with ASCAP and BMI.

An interesting question is whether significantly decreased market shares on the part of

ASCAP and BMI due to major publisher withdrawals would, paradoxically, obviate the

need for ongoing government control of those organizations. From a practical

perspective, one might question why ASCAP and BMI would remain subject to

significant government controls if larger market competitors (i.e., the major publishers)

were not subject to such supervision. We assume that the DOJ may address this issue in

its forthcoming analysis.

Rate Decision

Following the rulings on withdrawal, the ASCAP court, in a lengthy opinion, proceeded

to determine a “reasonable fee” of 1.85% for Pandora, applying a “hypothetical” “fair

market value” standard.

812

In so doing, the court was dismissive of the publishers’

frustrations with the rate court process and their “envy” of the much higher rates being

paid by Pandora to sound recording owners (over 50% of revenues versus the

publishers’ combined market share of 4%)

813

—which sound recording rates in any event

the court could not consider as a result of the statutory bar in section 114(i).

814

810

See, e.g., SGA First Notice Comments at 8-9.

811

MMF & FAC Second Notice Comments at 46 (reproducing the “MMF Public response to the

Sony/ATV Statement”).

812

Pandora Ratesetting, 6 F. Supp. 3d at 353-54, 372.

813

Id. at 333, 366.

814

17 U.S.C. § 114(i) provides that “[l]icense fees payable for the public performance of sound

recordings . . . shall not be taken into account in any . . . proceeding to set or adjust the royalties

payable to copyright owners of musical works for the public performance of their works.”

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U.S. Copyright Office Copyright and the Music Marketplace

The court sharply criticized Sony/ATV’s and UMPG’s efforts to negotiate higher rates

with Pandora outside of the confines of the consent decree that could then serve as

benchmarks in the rate court proceeding. Finding the publishers’ tactics objectionable—

especially in light of the fact that Pandora could face large-scale copyright liability if it

failed to conclude licenses—it rejected the outside agreements as suitable benchmarks.

815

Among other things, the court took issue with Sony/ATV’s and UMPG’s failure to

provide lists of the compositions they owned to Pandora so Pandora could remove their

respective works from its service if necessary.

816

While the court’s opinion suggests that Sony/ATV and UMPG may have engaged in

anticompetitive behavior by “purposefully set[ting] out” to “create higher benchmarks,”

and also expressed concern about the publishers’ “coordinated” behavior in

withdrawing new media rights—as well as their aggressive negotiation strategies—the

court ultimately concluded that it had “no need to explore which if any of [their] actions

was wrongful or legitimate.”

817

In this regard, while it was not the only aspect of the

publishers’ conduct that troubled the court, it is hard to see how the mere desire to seek

higher royalty rates—or the fact that the CEO of Sony/ATV appeared in a news article

“in shirt sleeves with a large cigar in his mouth” to boast of the higher rate he had

negotiated with Pandora—could constitute an antitrust violation.

818

Undoubtedly, the Pandora court believed itself to be carrying out the purpose of the

ASCAP decree, and the decree, of course, is meant to address antitrust concerns. But the

opinion is notable for its focus on the behavior of a handful of actors instead of an

empirically based economic analysis of the proper rate for Pandora. For example,

rejecting ASCAP’s arguments that the court should consider Pandora’s commercial

success as part of its inquiry, the court opined that “market share or revenue metrics are

poor foundations on which to construct a reasonable fee.”

819

Yet it seems that these

factors might well be considered by parties in an actual market negotiation.

Additionally, even assuming for the sake of argument that Sony/ATV’s and UMPG’s

tactics had unequivocally been found by the court to cross the line from forceful

negotiations to anticompetitive conduct, it must be remembered that the rate set by the

court applies not only to those companies, but to all other publisher and songwriter

members of ASCAP as well. Such a court-ordered rate is also likely to heavily influence

the market for the other PROs, and hence the industry as a whole. A question arises,

then, as to whether the court’s repudiation of specific conduct on the part of some by

815

Pandora Ratesetting, 6 F. Supp. 3d at 360-61.

816

Id. at 345-46, 361.

817

Id. at 357-58.

818

Id. at 347.

819

Id. at 369.

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U.S. Copyright Office Copyright and the Music Marketplace

rejecting the possibility of a higher rate represents a fair outcome for the rest of the

industry.

Availability of Song Data

As a general matter, the Office concurs with the apparent view of the Pandora court that

a service should be able to ascertain what works are covered under a license so as to

permit the service to remove unauthorized works if necessary. Infringement liability

should not arise from a game of “gotcha.” Since the Pandora decision, it appears that

both Sony/ATV and UMPG have made efforts to make their song data available to

licensees.

820

In addition to such voluntary efforts, the Office believes that government

policies should strongly incentivize the public availability of song ownership data for

works in the marketplace, a topic that is addressed in more depth below.

PRO Ratesetting Process b.

This above section reviews the Pandora decision in some detail because it illuminates an

important policy concern: namely, whether we should continue to blend antitrust

oversight with industry rate proceedings as envisioned under the consent decrees. In

the Pandora litigation, this approach appears to have yielded a mixture of competition

and ratesetting considerations, without a satisfying analysis of either. The Office is of

the view that allegations of anticompetitive conduct are worthy of evaluation (and, if

appropriate, remedial action) separate and apart from the question of a fair rate—and

vice versa. Each of these two critical policy objectives merits government attention in its

own right.

821

The Office therefore proposes that the ratesetting aspects of PRO oversight be separated

from whatever government supervision is determined still to be necessary to address

antitrust concerns.

Migrate to Copyright Royalty Board

Assuming PRO ratesetting is separated from any ongoing antitrust oversight, the Office

proposes that the function of establishing rates be migrated to the CRB.

822

Industry

820

See Ed Christman, Sony/ATV Makes Organized Catalog Available Online, BILLBOARD (July 16,

2014), http://www.billboard.com/biz/articles/news/publishing/6157855/sonyatv-makes-

organized-catalog-available-online; Ed Christman, UMPG to Make Entire Database Easier for

Licensees, B

ILLBOARD (June 27, 2014), http://www.billboard.com/biz/articles/news/publishing/

6140985/umpg-to-make-entire-database-easier-for-licensees.

821

See EPSTEIN at 36 (concluding that “there is no comparative advantage in using a judicial body

as opposed to some administrative agency” for ratesetting).

822

ASCAP and BMI also seek to have rate disputes decided outside of federal court. Both have

recommended some sort of system of (apparently private) arbitration without providing much

detail. ASCAP First Notice Comments at 4, 23-24 (recommending “expedited private

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U.S. Copyright Office Copyright and the Music Marketplace

ratesetting is, of course, a primary function of the CRB, and the CRB has the benefit of

experience assessing a broader spectrum of rate-related questions than the federal rate

courts. Significantly, the CRB sets rates on the sound recording side as well as for

musical works. It also has in-house economic expertise. While, as discussed below,

interested parties appear to agree that the statutory framework governing the CRB’s

procedures could stand some improvement, on the whole it seems only logical to

consolidate music ratesetting proceedings in a single specialized tribunal.

In offering the suggestion that the CRB assume responsibility for the rates applicable to

the public performance of musical works, the Office does not mean to suggest that the

CRB should not question the legitimacy of particular benchmarks if there is reason to do

so (as the CRB in fact routinely does in ratesetting proceedings). But the ultimate aim of

the proceeding should be a fair rate for the industry as a whole, rather than the

enforcement of antitrust policy. The Office believes that a process focused on industry

economics rather than antitrust analysis offers a more auspicious framework to establish

broadly applicable rates.

Under the Office’s proposal, discussed in more detail below, the CRB, like the rate

courts, would step in to set a rate only when it could not be agreed as between the

relevant parties. Such ratesetting activities would not need to occur on a five-year

schedule, as under the current CRB system, but would be commenced on an as-needed

basis, like today’s proceedings before the ASCAP and BMI rate courts. Additional

parties seeking to resolve the same rate issue could be offered the opportunity to join the

proceeding. Assuming the experience were similar to that of the rate courts, the vast

majority of rates would be agreed voluntarily rather than litigated.

Assuming the ratesetting authority for the public performance of musical works were

transferred from the rate courts to the CRB, a question arises as to whether the

separation of ratesetting and antitrust responsibilities would provide the occasion to

sunset the decrees and adopt a more modern approach to antitrust oversight in this area.

Under a more flexible approach, the DOJ would investigate and address potential

anticompetitive behavior on an as-needed basis, rather than continue to impose

presumptive restrictions under the consent decrees. As noted above, private

arbitration”); Music Licensing Hearings at 52 (statement of Michael O’Neill, CEO, BMI) (“We

believe that replacing the current rate court with arbitration in New York under the American

Arbitration Association rules would be a faster, less expensive, and a more market-responsive

mechanism for all parties to obtain fair, market-value rate decisions.”). For the reasons discussed

above, the Office believes the CRB is the logical venue to determine public performance rates. As

an added benefit, the CRB does not depend upon the payment of private arbitration fees (a

significant factor in the demise of the CARPs that preceded the CRB). See H.R.

REP. NO. 108-408,

at 21, 99-100. At the same time, based on stakeholders’ input, the Office is recommending certain

changes to the CRB system, which are outlined below.

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U.S. Copyright Office Copyright and the Music Marketplace

enforcement actions, as well, could play a role in policing alleged misconduct. We leave

such questions of antitrust policy for the DOJ to answer.

Section 114(i)

Regardless of whether PRO ratesetting is migrated to the CRB, as further discussed

below, the Copyright Office endorses the proposal—embodied in the proposed SEA

legislation

823

—that the prohibition in section 114(i) that currently prevents ratesetting

tribunals from considering sound recording performance royalties be eliminated.

Originally designed as a protective measure to benefit songwriters and publishers, it

appears to be having the opposite effect. Contrary to the suggestion of the Pandora

court,

824

the Office does not understand why, absent such a restriction, it might not be

relevant to consider sound recording royalties in establishing a fair rate for the use of

musical works should a ratesetting authority be so inclined.

825

Interim Fees

Under the consent decrees, anyone who applies for a license receives one. There is no

requirement of immediate payment. As discussed above, an applicant has the right to

perform musical works in a PRO’s repertoire pending the completion of negotiations or

rate court proceedings resulting in an interim or final fee.

826

Since the consent decrees

do not provide for immediate and concurrent payment for uses made during these

periods—and do not establish a timeframe for the commencement of a rate court

proceeding—an applicant is able to publicly perform a PRO’s catalog of works for an

indefinite period without paying.

827

Needless to say, commercial entities do not

typically receive a steady supply of product for months or years based on a mere letter

request. But such is the case with music.

The problem is exacerbated by the substantial burden and expense of litigating a rate in

federal court—a contingency both sides seek to avoid. Licensees may pay nothing or

greatly reduced fees for years as negotiations drag on, while still enjoying all of the

benefits of a license. The Office agrees with those commenters who have suggested that

this system—under which services may launch and continue to operate without an

agreed rate—significantly increases the leverage of licensees at the expense of the PROs

823

SEA, H.R. 4079; SEA, S. 2321, 113th Cong. (2014).

824

Pandora Ratesetting, 6 F. Supp. 3d at 366-67.

825

The Office does not believe that the fact that the limitation was originally proposed by musical

work owners, even if ill-conceived, is a sufficient basis to determine it should continue in effect.

826

See ASCAP Consent Decree § IX.E; BMI Consent Decree § XIV.A.

827

ASCAP First Notice Comments at 15-16; BMI First Notice Comments at 16-17.

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U.S. Copyright Office Copyright and the Music Marketplace

and their members.

828

Because the licensee already has access to the works it needs,

there is no urgency to agree to a rate.

Once again, the Office does not see why music is treated differently from the goods of

other suppliers in the marketplace. A fair and rational system should require licensees

to pay at least an interim rate from the inception of their service, subject to a true-up

when a final rate is negotiated with the PRO or established by the ratesetting authority.

Notably, both the ASCAP and BMI consent decrees include a process for the rate court

to set interim rates. In practice, however, it seems that this option—which, at least for

BMI, entails up to four months of discovery and motion practice

829

—is not commonly

exercised. Likely this is due to parties’ reluctance to undertake the considerable burden

and expense of federal court litigation, especially when the result is only a temporary

one.

830

The Office is of the view that to the extent a licensing entity is required to grant a license

upon request, there should be a viable (not merely theoretical) mechanism—for

example, a brief, single-day hearing before the ratesetting authority (e.g., the CRB)—to

set an interim royalty rate without undue burden or expense. While nothing is ever as

simple as it seems, the Office believes that a workable system should be feasible. For

example, a licensee could be required to share a written description of the material

aspects of its proposed service, after which both parties would proffer lists of relevant

rates already in effect, which together would serve as guidance for the decisionmaker. It

should not be necessary to have an elaborate procedure when the temporary rate can be

adjusted retroactively. In addition to being more equitable for music owners, the Office

believes requiring licensees to pay an interim rate would provide greater incentive to

resolve rates through voluntary negotiations at the outset.

Partial Withdrawal of Rights c.

A primary focus of the commentary to the Copyright Office—and to the DOJ in its

review of the consent decrees—is music publishers’ ability (or inability) to withdraw

specific categories of licensing rights from their authorizations to the PROs. The

828

See also, e.g., MMF & FAC Second Notice Comments at 10 (“As far as we know most of the

societies in the EU require potential licensees to provide important financial and operational data

(and in the case of a startup, their business projections, and projected user numbers) when

making their application. To us this seems sound common sense and, coupled with an ability by

societies to require an interim payment, would rebalance the negotiating process more fairly.”).

829

See BMI Antitrust Consent Decree Review Comments at 20-21. The ASCAP consent decree

requires that the court set an interim rate within 90 days of a request. See ASCAP Antitrust

Consent Decree Review Comments at 12.

830

See ASCAP Antitrust Consent Decree Review Comments at 14 n.20; BMI Antitrust Consent

Decree Review Comments at 21.

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U.S. Copyright Office Copyright and the Music Marketplace

purpose of such withdrawals would be to allow music owners to negotiate in the

marketplace for the exploitation of their songs—or, if not satisfied with the price offered,

to withhold their songs from particular services. This has an analog in much of the

discussion surrounding section 115, another area where publishers and songwriters seek

the ability to escape from mandatory licensing.

As noted above, except in the case of internet radio providers that qualify for the section

112 and 114 statutory licenses, record companies are free to negotiate with potential

licensees in the open market. But for music publishers, it is the exception rather than the

norm, as the licensing of both mechanical and performance licenses is largely subject to

government mandate.

There is substantial evidence to support the view that government-regulated licensing

processes imposed on publishers and songwriters have resulted in depressed rates, at

least in comparison to noncompulsory rates for the same uses on the sound recording

side. Setting aside efficiency concerns, the Office does not see a principled reason why

sound recording owners are permitted to negotiate interactive streaming rates directly

while musical work owners are not. The Office is therefore sympathetic to the

publishers’ position that they should be permitted to withdraw certain rights from the

PROs to permit market negotiations. The Office believes that partial withdrawal—in the

form of a limited right to “opt out”—should be made available to those who want it.

This view is reinforced by the possibility of wholesale defections by major (and perhaps

other) publishers from ASCAP and BMI if government controls are not relaxed, and the

potential chaos that would likely follow.

Any such opt-out process would need to be carefully managed to ensure licensees did

not face undue burdens in the licensing process as a result. At least for now, the Office

believes that withdrawal of performance rights should be limited to digital rights

equivalent to those that the record labels are free to negotiate outside of sections 112 and

114—essentially, interactive streaming rights for new media services. In the case of such

a partial withdrawal, the publisher would be free to pursue a direct deal for the rights in

question (or, if not satisfied with a licensee’s offer, withhold songs from the service in

question).

Publishers who chose to opt out would need publicly to identify the particular uses

subject to withdrawal, the licensing organization from which they were being

withdrawn, each of the affected works, where a direct license might be sought, and other

pertinent information.

831

As discussed below, it is the Office’s recommendation that a

non-profit general music rights organization (“GMRO”) be designated by the Copyright

Office to receive, maintain and offer access to this information. The Office additionally

proposes that the current PROs be permitted to expand to become music rights

831

The proposed opt-out right would be by publisher, not by individual work.

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U.S. Copyright Office Copyright and the Music Marketplace

organizations (“MROs”) that would be capable of administering not just performance

rights but mechanical and perhaps other musical work rights as well.

832

While the publisher would presumably choose to be paid directly by the licensee under

any resulting outside licensing arrangement rather than through an MRO, in order to

ensure songwriters’ confidence in the accounting and payment process, the Office

believes that songwriters affiliated with that publisher should retain the option of

receiving their writer’s share of royalties directly from the licensee through their chosen

MRO.

833

Finally, to the extent publishers failed to affiliate with an MRO, their performance rights

would fall under the default licensing authority of the GMRO, which, as described

below, would collect royalties and distribute them to publisher claimants. The

combination of direct deals, MRO-issued licenses, and the GMRO backstop would allow

licensees to secure full licensing coverage for necessary performance rights.

Bundled Licensing d.

During the study, industry stakeholders broadly supported increased bundling of rights

to facilitate greater licensing efficiency. On the sound recording side of the equation,

this does not appear to be much of an issue. To the extent noninteractive services

procure licenses under sections 112 and 114, they obtain both digital performance rights

and the reproduction rights (e.g., server copy rights) needed to engage in the streaming

process. When services negotiate licenses outside of the statutory scheme, the labels are

free to bundle all necessary rights together.

On the musical work side, however, the story is different. Licenses for the reproductions

necessary to support an interactive streaming service are issued under section 115,

whereas licenses for the streamed performances of works are obtained from the PROs.

In 2008, following a lengthy Copyright Office administrative proceeding and

industrywide settlement, the CRB adopted regulations that effectively establish bundled

rates for various types of streaming activities, under which the total cost of licensees’

PRO performance licenses is deducted from the overall percentage rate applicable to the

relevant service under section 115.

834

But while the royalty rate problem may have been

832

As discussed above, the concept of MROs was proposed by former Register Marybeth Peters in

testimony before Congress in 2005. Copyright Office Views on Music Licensing Reform Hearing at 21-

36 (statement of Marybeth Peters, Register of Copyrights).

833

This option could also help to alleviate concerns about the status of non-U.S. writers affiliated

with foreign PROs if the U.S. publisher of their works chooses to pursue partial withdrawal.

834

See Mechanical and Digital Phonorecord Delivery Rate Determination Proceeding, 74 Fed. Reg.

at 4531-32 (setting forth the CRB’s proposed regulations that established the rates and terms for

the use of musical works in limited downloads, interactive streaming and incidental digital

phonorecord deliveries); see also Compulsory License for Making and Distributing Phonorecords,

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U.S. Copyright Office Copyright and the Music Marketplace

addressed, an interactive service must still obtain separate mechanical and performance

licenses and report complex accounting information under these two different licensing

regimes (song-by-song licensing under section 115 versus blanket licensing by the

PROs).

In 2005, former Register of Copyrights Marybeth Peters proposed moving from a

dualistic approach for the licensing of musical works for mechanical and performance

purposes to a system of integrated music rights organizations, or MROs.

835

At the

time—when mechanical royalties represented a more significant income stream than

they do today—music publishers and songwriters expressed considerable skepticism

about such a bundled approach.

836

Today, in an era where mechanical royalties are

becoming more marginal, Register Peters’ proposal appears prescient, and enjoys

support among publishers, songwriters and—not surprisingly—digital licensees.

837

now seems apparent that the government should pursue appropriate changes to our

legal framework to encourage bundled licensing, which could eliminate redundant

resources on the part of both licensors and licensees.

As touched upon above, the most obvious step in this regard would be to allow existing

music licensing organizations to expand to fill this role—the PROs would be permitted

to take on mechanical licensing, and mechanical licensing entities such as HFA or MRI

could integrate performance rights into their businesses. To satisfy reporting and

payment obligations under songwriter or other agreements that distinguish between

these rights, some sort of allocation of income as between the two rights would likely be

required. This perhaps could be addressed by the CRB in establishing bundled rates (as

under the section 112 and 114 licenses), or by the individual MROs in administering

negotiated licenses.

838

Including Digital Phonorecord Deliveries, 73 Fed. Reg. 66,173, 66,180 (adopting rule that

permitted server and other copies necessary to certain streaming processes to be licensed under

section 115).

835

See Copyright Office Views on Music Licensing Reform Hearing at 6 (statement of Marybeth Peters,

836

See, e.g., id. at 62 (statement of NMPA) (“[W]e believe the Copyright Office proposal is fatally

flawed and would be harmful to songwriters and music publishers.”).

837

Such a unified licensing model has been in effect for 17 years in the United Kingdom. Our

History, PRS

FORMUSIC, http://www.prsformusic.com/aboutus/ourorganisation/ourhistory/Pages/

default.aspx (last visited Jan. 22, 2015).

838

The U.K.’s unified licensing system may provide a helpful model in this regard. PRS for Music

was created by joining together the U.K. Performing Right Society (“PRS”) and the Mechanical

for Music distribution committee determines various splits between PRS and MCPS depending

upon the type of use, which allocations are subject to ratification by the PRS and MCPS boards.

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U.S. Copyright Office Copyright and the Music Marketplace

3. Mechanical Licensing and Section 115

As sales of CDs continue to slip away, mechanical licensing revenues for the

reproduction and distribution of musical works under section 115—once the primary

source of income for publishers and songwriters—likewise continue to decline.

839

Although sales of digital downloads through services like Apple iTunes have bolstered

mechanical royalties in recent years, even DPD sales have fallen off with the rise of

streaming services such as Spotify. Even so, mechanical revenues still currently

represent about 23% of income for musical works (as compared to 52% generated by

performances, 20% by synch uses, and 5% by other uses).

840

Of the mechanical share, a

small amount is generated by the server and other reproductions of musical works

required for online providers to operate interactive streaming services which, as noted

above, also pay performance royalties.

Commenting parties have focused on two primary areas of concern with respect to the

106-year old compulsory license embodied in section 115. The first, put forth by music

publishers and songwriters, is that the compulsory license does not permit them to

control the use of their works or seek higher royalties. Relatedly, rightsowners also

complain about the lack of an audit right under section 115 and practical inability to

enforce reporting or payment obligations against recalcitrant licensees.

The second overarching concern with respect to section 115 is its song-by-song licensing

requirement, which dates back to the original incarnation of the compulsory license in

1909. Song-by-song licensing is viewed by music users as an administratively

daunting—if not sisyphean—task in a world where online providers seek licenses for

millions of works.

Free Market Negotiation Versus Collective Administration a.

One of the most challenging issues to arise in this study has been whether musical work

owners should be liberated from the section 115 compulsory licensing regime. Citing

PRS Distribution Policy Rules, PRSFORMUSIC, http://www.prsformusic.com/creators/

memberresources/Documents/Distribution%20policy/Distribution%20Policy%20Rules%20as%

20at%20November%202014.pdf (last visited Jan. 22, 2015). Out of those splits, 100% of

mechanical royalties are paid to the publisher, while performance royalties are split 50/50

between writer and publisher unless an alternate division of royalties is specified. Music

Registration Policy, PRS

FORMUSIC, http://www.prsformusic.com/creators/memberresources/

how_it_works/musicregpolicy/Pages/musicregpolicy.aspx (last visited Jan. 22, 2015).

839

See ASCAP Second Notice Comments at 23.

840

Ed Christman, NMPA Puts U.S. Publishing Revenues at $2.2 Billion Annually, BILLBOARD (June

11, 2014), http://www.billboard.com/biz/articles/news/publishing/6114215/nmpa-puts-us-

publishing- revenues-at-22-billion-annually.

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the significantly higher rates paid to sound recording owners for uses where musical

work owners are regulated and sound recording owners are not—and the contrasting

example of the unregulated synch licensing market, where in many cases licensing fees

are evenly apportioned—music publishers and songwriters have made a convincing

case that government regulation likely yields rates below those they would enjoy in a

free market. Motivated by concerns similar to those raised in connection with the

consent decrees, many musical work owners would like to see an end to section 115.

The Office—which, as noted, believes that compulsory licensing should exist only when

clearly needed to address a market failure—is sympathetic to these claims.

On the other hand, in comparison to the record industry—where three major companies

can issue licenses for much of the most sought-after content, with independent labels

representing the balance

841

—U.S. musical work ownership is more diffusely distributed

over a greater number of entities and self-published songwriters.

842

Unlike sound

recordings—which are typically wholly owned by an individual label—many musical

works are controlled by two, three or even more publishers. Notwithstanding the

default rules of joint copyright ownership, publishers and songwriters frequently have

understandings that they are not free to license each other’s respective shares.

843

And

there are millions of musical works in the marketplace. Spotify, for instance, reports that

it offers some 30 million songs on its service.

844

Understandably, as described above, digital music providers are intensely opposed to a

system that would require individual licensing negotiations with thousands of musical

work owners. Even publisher proponents of the proposal to sunset section 115 do not

841

Although three record companies dominate, independent record labels enhance the market

with a rich variety of content, including well-known hit recordings. A2IM First Notice

Comments at 1 (“Billboard Magazine, using Nielsen SoundScan data, identified the Independent

music label sector as 34.6 percent of the music industry’s U.S. recorded music sales market in

2013.”). Many independent labels are represented by organizations that aggregate repertoire for

collective licensing, such as the U.K.-based Merlin, which issues licenses to digital services such

as YouTube and Spotify on a global basis. Merlin Strikes Licensing Deal with YouTube, M

ERLIN (Oct.

19, 2011), http://www.merlinnetwork.org/news/post/merlin-strikes-licensing-deal-with-youtube.

842

In recent years, as with recorded music, there has been significant consolidation in the music

publishing industry, such that the three major publishers now represent some 63% of the

market—approaching the record company figure of 65%. See Christman, First-Quarter Music

Publishing Rankings: SONGS Surges Again; Bruce Houghton, Indie Labels Now Control 34.6% Of U.S.

Market, H

YPEBOT (Jan. 16, 2014), http://www.hypebot.com/hypebot/2014/01/indie-labels-now-

control-346-of-us-market.html.

843

See, e.g., PASSMAN at 304-05 (explaining that “[t]rue co-administration” deals, in which all

parties retain the right to administer their own share of a composition, are among the most

common arrangements for songs co-owned by publishers of approximately equal status).

844

Information, SPOTIFY, https://press.spotify.com/us/information/ (last visited Jan. 22, 2015).

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U.S. Copyright Office Copyright and the Music Marketplace

deny that it would be extraordinarily difficult for services to negotiate with myriad

small copyright owners for all of the mechanical licenses they seek, and concede that

there needs to be some sort of collective system to facilitate licensing from smaller

rightsowners.

845

But apart from the optimistic view that should section 115 be retired,

new entities will spring forth to meet this need, publisher participants offered little

detail concerning how a collective solution would reliably be implemented.

The difficulty, then, is how to reconcile the competing values of free market negotiation

and collective management of rights. Each represents an express goal of reform: fair

compensation to creators, on the one hand, and licensing efficiency, on the other. A

middle path may provide the best answer.

Publisher Opt-Out Right

The Office believes that rather than eliminating section 115 altogether, section 115

should instead become the basis of a more flexible collective licensing system that will

presumptively cover all mechanical uses except to the extent individual rightsowners

choose to opt out. At least initially, the mechanical opt-out right would extend to the

uses that could be withdrawn from blanket performance licenses—that is, to interactive

streaming rights—as well as to downloading activities

846

(which, by judicial

interpretation, do not implicate the public performance right

847

). To reiterate, these are

uses where sound recording owners operate in the free market but publishers do not.

848

845

IPAC First Notice Comments at 6 (“Owners of musical works are sympathetic to those entities

that need an efficient process by which to obtain licenses for musical works. In that regard, IPAC

supports the creation of one or more licensing agencies to negotiate fair market license rates and

grant licenses on behalf of the copyright owners of the musical works on a blanket license or

individual song basis.”); NMPA First Notice Comments at 18 (“Compulsory licensing is not

needed to achieve the efficiency of bundled licenses . . . the only thing stopping performance

rights organizations such as ASCAP and BMI from offering a bundle of reproduction,

performance, and distribution rights from songwriters/publishers willing to appoint them as

their agents for such rights are outdated consent decrees.”).

846

The category of downloads includes both permanent downloads and limited downloads.

While permanent downloads are available to the purchaser indefinitely, limited downloads can

be accessed for only a limited period of time or limited number of plays. 37 C.F.R. § 385.11.

Download uses also include ringtones, for which a separate rate has been established under

section 115. 37 C.F.R. § 385.3; see also Mechanical and Digital Phonorecord Delivery Rate

Adjustment Proceeding, 71 Fed. Reg. at 64,316 (setting forth the Copyright Office’s 2006

Memorandum Opinion concluding ringtones qualify as DPDs).

847

See United States v. ASCAP, 627 F.3d 64, 68 (2d. Cir. 2010) (holding that downloading a digital

music file over the internet does not constitute a public performance of the work embodied in

that file); In re Cellco Partnership, 663 F. Supp. 2d 363, 374 (S.D.N.Y. 2009) (holding that

downloading a ringtone to a cellular phone does not in and of itself constitute a public

performance of a musical work). Also note that musical work owners do not collect mechanical

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U.S. Copyright Office Copyright and the Music Marketplace

Full Market Coverage

As envisioned by the Office, the collective system would comprise MROs (as noted, with

the ability to represent both performance and mechanical rights) acting on behalf of their

respective publisher members; individual publishers (including self-published

songwriters) representing their own mechanical licensing interests who had exercised

their opt-out right; and the GMRO. Unless they had a direct deal in place, publishers

would be paid through their chosen MRO. The GMRO would collect for works (or

shares of works) not covered by a direct deal or represented by an MRO—including

works with unknown owners—and attempt to locate and pay the relevant rightsholders.

Licensees could thus achieve end-to-end coverage through the combination of MROs,

direct licensors, and the GMRO.

As in the case of those seeking to withdraw specific performance uses from mandatory

licensing, publishers who wished to opt out from one or more of the categories of

mechanical licensing would need to identify the uses in question and provide this

information (via their MRO if applicable) to the GMRO, along with identification of their

works, licensing contact information, and other relevant data.

849

They would then be

free to negotiate directly with, and be paid directly by, the licensee.

850

Absent provision

of a notice that the publisher was exercising its right to opt out, that publisher’s works

would be licensable through its MRO.

851

royalties for noninteractive streaming uses subject to section 112 and 114 statutory licensing. See

NMPA First Notice Comments at 24; Mechanical and Digital Phonorecord Delivery Rate

Determination Proceeding, 74 Fed. Reg. at 4513.

848

Although physical products, such as CDs and vinyl records, also fall into this category,

stakeholder concerns have focused far less on the physical marketplace, which (despite a recent

increase in the niche market of vinyl records) continues to decline. As noted above, the Office

believes that the question of opt-out rights for physical product could be deferred for future

consideration.

849

As noted above, at least for the time being, the Office believes that opt-out rights for publishers

should be by publisher, not by individual work. Thus, opt-out publishers would be responsible

for their entire catalog.

850

In contrast to performance rights, songwriter agreements do not assume that the writer’s share

of mechanical royalties will flow through a PRO. Accordingly, while it may be a matter worthy

of further discussion, the Office is not now suggesting that songwriters should have the right to

redirect their mechanical shares through a chosen MRO.

851

Some publishers could opt out only to find that the licensee declined to pursue individual

negotiations with them. For this reason, it seems it would be useful to have some sort of

mechanism for such a rightsowner to reverse its opt-out and return to the collective system if it

wished.

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U.S. Copyright Office Copyright and the Music Marketplace

Cover Recordings

Section 115 permits digital services and others to reproduce and distribute copies of

musical works embodied in existing recordings, provided that the user is also

authorized to use the recording.

852

Another dimension of section 115 is that it can be

used for permission to make new, “cover” recordings of songs, so long as the new

version does not change the basic melody or “fundamental character” of the work.

853

While the ability to make a cover recording has long been a feature of the law, it is not

without controversy, especially among recording artists who write their own works.

While some artist songwriters may view imitation as flattery, others do not appreciate

that they are unable to prevent the re-recording of their songs by others. Many music

creators seek more control over their works. As some artists see it, “[a]pproval is by far

the most important right that an artist possesses.”

854

With respect to cover recordings, the Office recommends an approach whereby those

who seek to re-record songs could still obtain a license to do so, including in physical

formats. But the dissemination of such recordings for interactive new media uses, as

well as in the form of downloads, would be subject to the publisher’s ability to opt out of

the compulsory regime. Thus, a publisher’s choice to negotiate interactive streaming

and DPD rights for its catalog of songs would include the ability to authorize the

dissemination of cover recordings by those means. Or, put another way, where the

852

17 U.S.C. § 115(a)(1).

853

Id. § 115(a)(2).

854

See, e.g., Dina LaPolt and Steven Tyler, Comments Submitted to the Department of

Commerce’s Green Paper on Copyright Policy, Creativity, and Innovation in the Digital

Economy, at 2 (Feb. 10, 2014), available at http:// www.uspto.gov/ip/global/copyrights/lapolt_and_

tyler_comment_paper_02-10-14.pdf (objecting to a compulsory remix license). This perspective

was voiced by a number of prominent artists in response to a suggestion to consider a new

licensing framework for remixes that has been put forth by USPTO and NTIA as part of the

“Green Paper” process of the Internet Policy Task Force. See generally G

REEN PAPER; Steve

Knopper, Don Henley, Steven Tyler Condemn Potential Copyright Law Change, R

OLLING STONE (Feb.

13, 2014), http://www.rollingstone.com/music/news/don-henley-steven-tyler-condemn-potential-

the reuse of creative works—would extend to music. See G

REEN PAPER at 28-29 (citing concerns

about music sampling). Various commenters addressed the Green Paper suggestion in their

comments to the Copyright Office. Because it is not a Copyright Office initiative, this report does

not address the remix issue other than to note that, based on the comments submitted to the

Office, it appears to have drawn opposition within the music community. See, e.g., CCC Second

Notice Comments at 3; LaPolt First Notice Comments at 15; NMPA & HFA Second Notice

Comments at 37-38. But see Menell First Notice Comments at 3 (advocating for the creation of a

compulsory license for remixes). The Office hopes that this report will prove useful to the

USPTO and NTIA in their evaluation of the remix issue as it relates to music.

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publisher had opted out, someone who produced a cover recording would need to

obtain a voluntary license to post the song on an interactive streaming or download

service (just as would someone who wished to offer streams or downloads of the

original recording of that work).

Audiovisual Uses

In their comments, the record companies explain that because consumers now access

music on computers, phones and other devices with screens, they expect to see

something when a song is playing—whether it is a video, album cover, or lyrics. The

labels’ observation corresponds to the fact that for music fans of today, YouTube—with a

billion users a month—is “the largest service in terms of listening to music.”

855

The record companies urge that the licensing system for musical works needs to be

updated to respond to the consumer desire for more—and more innovative—

audiovisual content. To illustrate the point, the labels cite a recent record release—

involving a variety of distinct consumer products—that necessitated over 1,400

individual licenses.

856

The combination of music with visual content requires a synchronization license—and

synch rights are not subject to government oversight. Section 115 is limited to audio-

only uses of musical works. While not proposing a specific approach, the labels would

like to see section 115 replaced with an updated blanket system that would extend to

consumer audiovisual products.

857

In their view, such a change would facilitate many

common synch transactions, such as the licensing of music videos to online services and

incorporation of music in user-posted videos.

In the eyes of music publishers and songwriters, however, the labels’ suggestion

represents a dramatic and unacceptable expansion of the compulsory system. This

reaction is perhaps not terribly surprising in light of the publishers’ present desire to

phase out mandatory audio-only licensing under section 115.

858

855

Tr. at 155:16-17 (June 4, 2014) (Steven Marks, RIAA); see also Glenn Chapman, YouTube debuts

subscription music service, Y

AHOO NEWS (Nov. 12, 2014), http://news.yahoo.com/youtube-debuts-

subscription-music-video-190223540.html (“YouTube is the world’s biggest online source of free

streaming music and the site has about a billion users a month.”).

856

RIAA First Notice Comments at 10 (“The record company responsible for one current,

successful release obtained 1481 licenses for the project.”).

857

The labels are not proposing to extend any synch licensing solution to uses in “third-party

created product[s],” such as in advertisements and television, which have always required

individualized negotiations with both labels and publishers. See id. at 17.

858

See NMPA Second Notice Comments at 32-33 (“The RIAA rationalizes this approach by

claiming a total abdication of approval rights by musical work owners combined with expanding

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U.S. Copyright Office Copyright and the Music Marketplace

The Office is sympathetic to the labels’ concerns, but cannot at this time recommend that

consumer synch uses be incorporated into a government-supervised licensing regime.

As may be apparent from much of the foregoing discussion, once a compulsory license

is implemented it becomes deeply embedded in industry practices and—even when its

original rationale is lost in time—is difficult to undo. That alone should counsel caution

in all but the most manifest instances of market failure.

Here, the Office does not observe such a failure and believes there is even some reason

to be optimistic about private market solutions. First, in the case of new releases, the

labels presumably have some ability (and leverage) to work through audiovisual

licensing issues by virtue of their role with respect to the creation of music videos,

album art, etc. Notably, in the RIAA’s own example of “a single album project”

requiring over a thousand licenses, it seems that licenses were obtained.

859

Additionally, over the last decade, labels and publishers have entered into a series of

NDMAs to facilitate the labels’ licensing of music videos and other products from music

publishers.

860

And in another significant development, YouTube has developed a robust

licensing program and entered into voluntary agreements that enable large and small

labels and publishers to claim and monetize their content.

861

Taken together, these

the scope of formats authorized under Sec. 115 would promote greater efficiency and would

simplify the music licensing process. With an Orwellian spin, they promote the idea that musical

work owners would be enriched if they are, ultimately, disempowered in the digital music

marketplace.”); NSAI Second Notice Comments at 8 (“While the concept of a more efficient

licensing system is something everyone agrees on, the RIAA proposal would basically eliminate

the ability of music publishers or self-published songwriters and composers to initiate or directly

negotiate their own agreements.”). Interestingly, just a few years ago, the publishers were of a

somewhat different mindset, with NMPA advocating for a blanket-style license to cover synch

uses by YouTube and similar services: “If we don’t . . . figure out a way to do mass

synchronizations, we are going to miss out on many business opportunities that could provide

solutions to the declining fortunes of the whole music industry.” David Israelite, David Israelite,

NMPA President’s Guest Post: Why Music Publishers Must Adopt Blanket Licensing, B

ILLBOARD (June

24, 2011), http://www.billboard.com/biz/articles/news/publishing/1177339/david-israelite-nmpa-

presidents-guest-post-why-music-publishers.

859

RIAA First Notice Comments at 6, 10.

860

For example, in 2012, NMPA negotiated a licensing framework with UMG to permit

independent publishers to grant UMG the synch rights necessary to stream videos containing

their works on VEVO and YouTube. See NMPA Second Notice Comments at 33; Butler,

UMG/NMPA Broker Model License Agreement; Christman, NMPA Inks Deal With Universal Music

Group Over VEVO, YouTube Videos.

861

In this regard, however, it is worth noting that independent publishers had to pursue an

infringement action against YouTube before YouTube presented them with a licensing offer under

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U.S. Copyright Office Copyright and the Music Marketplace

examples suggest that the market appears to be responding to the need for licensing of

audiovisual uses by consumers and that there is probably no pressing need for

government intervention.

Shift to Blanket Licensing b.

Regardless of its scope or whether it includes an opt-out right, the Office believes that

section 115 should be updated to better meet the needs of the digital age. Congress

attempted to do this in 2006 with the proposed SIRA legislation, which would have

created a blanket mechanical license for digital uses. Although that bill got as far as

passing the relevant House subcommittee,

862

it faced a degree of resistance from certain

industry participants and ultimately foundered.

Based on stakeholders’ sentiments, however—especially those of the digital services—

the time seems ripe to revisit the concept of blanket mechanical licensing. Users have

made a strong case in pointing out the inefficiencies of a system that requires multiple

licensees to ascertain song-by-song licensing information and maintain it in redundant

databases. At the same time, they have repeatedly expressed a willingness to pay

royalties in cases where they are unable to track down licensing information for

particular songs in order to mitigate their potential liability for unmatched works.

863

a settlement negotiated by NMPA. See Football Ass’n Premier League v. YouTube, 633 F. Supp. 2d

159.

862

See SIRA, H.R. 5553. In 2006, the House Judiciary Committee’s Subcommittee on Courts, the

Internet, and Intellectual Property forwarded SIRA to the full Judiciary Committee by unanimous

voice vote. See H.R. 5553, C

ONGRESS.GOV (June 8, 2006), https://www.congress.gov/bill/109th-

congress/house-bill/5553.

863

Notably, section 115 has, since its inception, provided a mechanism to file a notice of intent to

use a musical work with the Copyright Office if the owner of the work cannot be found in

to be collected by the Office in connection with these filings. See id. It is the Office’s

understanding, however, that this provision does little to ameliorate concerns of digital services

in light of the filing fees that the Office must charge to administer such song-by-song notices,

which may number in the thousands or perhaps even the millions for a large service. See DiMA

First Notice Comments at 20 (“[T]o the extent that a service chooses to file statutory license

notices with the Copyright Office for the many musical works for which the relevant

rightsowners cannot be identified, the costs can be overwhelming given the volume of works at

issue.”). Under its current fee schedule, the Office charges a fee of $75 for a notice of intention

covering a single title, and for notices incorporating additional titles, a fee of $20 per 10 additional

titles submitted on paper, and $10 per 100 additional titles submitted electronically. 37 C.F.R. §

201.3(e). Moreover, due to IT constraints within the Library of Congress, the Office is still not

able to accept such submissions in bulk electronic form.

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But while considerably more user-friendly for licensees, blanket licensing cannot be

viewed as a panacea. It does not cure the problem of bad or missing data, or the

inability to match sound recordings with the musical works they embody. In any

situation where a licensed transaction takes place, in order for a royalty to be paid to the

rightsowner, there must be a link between the work used and the owner of that work.

Especially in the case of lesser known works, it can be challenging to match a sound

recording with the musical work it embodies, and that musical work to its owner.

Today, under section 115, the burden of identifying the song and its owners is on the

licensee (or sometimes a third-party agent retained by the licensee); the link is made in

the song-specific license that issues. Blanket licensing merely kicks this responsibility

down the road for another actor to address. Under a blanket system, the obligation to

make the match between the exploited work and its owner falls on the licensing

organization—for example, the PRO—which must identify the use and connect it to the

owner.

Nonetheless, the Office believes that on the whole, the benefits of a blanket licensing

approach clearly outweigh the conceded challenges of matching reported uses with

efficiencies of blanket licensing by SoundExchange and the PROs, and widespread

frustration with the song-by-song process required under section 115—including from

publishers who find themselves burdened with deficient notices and accountings.

Ultimately, it is in the interest of music owners as well as licensees to improve the

licensing process so it is not an obstacle for paying services. To further facilitate the

rights clearance process and eliminate user concerns about liability to unknown

rightsowners, the Office believes that mechanical licensing, like performance licensing,

should be offered on a blanket basis by those that administer it. This would mean that a

licensee would need only to file a single notice to obtain a repertoire-wide performance

and mechanical license from a particular licensing entity. Song-by-song licensing is

widely perceived as a daunting requirement for new services and an administrative

drag on the licensing system as a whole. The move to a blanket system would allow

marketplace entrants to launch their services—and begin paying royalties—more

quickly.

Ratesetting c.

As explained above, the Office supports integration of mechanical with performance

rights administration to simplify the licensing process, especially where both rights are

implicated, as in the case of interactive streaming.

864

Even if both rights are not

864

Although publishers traditionally have not sought royalties for the server and other

reproductions necessary to facilitate noninteractive streaming, it would probably be helpful to

clarify the law to provide that any necessary mechanical rights were covered as part of a bundled

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U.S. Copyright Office Copyright and the Music Marketplace

implicated—as in the case of DPD licensing—it would still appear to make sense to

combine licensing resources into unified MROs, especially in a world of declining

mechanicals. In order to reap the rewards of a more unified licensing structure, the

Office further recommends that the ratesetting procedures for mechanical and

performance also be combined.

“As-Needed” Ratesetting

The CRB establishes mechanical rates for the various categories of use that fall under

section 115.

865

The Office believes this responsibility should continue, though with an

important modification: as is now the case with performance rights, rather than

establish rates across the board every five years, the CRB should set rates for particular

uses only on an as-needed basis when an MRO and licensee are unsuccessful in reaching

agreement.

There are currently 17 distinct rate categories under the section 115 license,

866

each with

its own specific rate. Under the current CRB regime, the parties are required to identify

at the outset of the ratesetting proceeding every business model that may be relevant in

the next five years so that a rate can be established for that use. As digital business

models proliferate, so do the rates. The determination of government rates for a

plethora of specific distribution models would seem to be an inefficient way to go about

the ratesetting process. In the first place, new digital models spring up every day, so it is

impossible to keep up with the changing marketplace prospectively. In addition, many

of the rates required to be included in a global ratesetting process might be easily agreed

by the parties without the need for government intervention—especially in the case of

uses that are less economically significant.

license. Cf. Compulsory License for Making and Distributing Phonorecords, Including Digital

Phonorecord Deliveries, 73 Fed. Reg. at 66,180-81 (“[I]f phonorecords are delivered by a

transmission service, then under the last sentence of 115(d) it is irrelevant whether the

transmission that created the phonorecords is interactive or non-interactive.”).

865

A section 115 license is only available after phonorecords of the work in question have first

been distributed to the public in the United States under the authority of the copyright owner. 17

U.S.C. § 115(a)(1). The Office is not recommending any change to this aspect of the statutory

system, which permits musical work owners to control the so-called “first use” (or initial

recording) of their works.

866

These categories include: physical phonorecords and permanent digital downloads (see 37

C.F.R. § 385.3(a)); ringtones (see 37 C.F.R. § 385.3(b)); five compensation models for services

offering interactive streams and limited downloads (see 37 C.F.R. § 385.13(a)); three types of

promotional activities involving interactive streams and limited downloads (see 37 C.F.R. §

385.14(b)-(d)); mixed service bundles, music bundles, limited offerings, paid locker services, and

purchased content locker services (see 37 C.F.R. § 385.23(a)); and free trial periods for certain

service offerings (see 37 C.F.R. § 385.24).

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U.S. Copyright Office Copyright and the Music Marketplace

Under the Office’s approach, the CRB would be called upon to set a rate only in the case

of an impasse between two parties. But to borrow from the existing CRB system, other

interested parties (such as other MROs and other users) could choose to join the relevant

proceeding, in which case those parties would also be bound by the CRB-determined

rate (except for publishers opting out of the MRO for the use in question.

867

)

Use of Benchmarks

Throughout the study, there has been significant debate concerning the ratesetting

standard that should be employed by the CRB—some supporting section 801(b)(1)’s

four-factor test that applies to satellite radio and pre-existing subscription services under

section 114, as well as mechanical uses under section 115, while others favor the willing

buyer/willing seller standard that governs internet radio. As discussed above in

connection with the issue of licensing parity, the Office believes that all music users

should operate under a common standard, and that standard should aim to achieve

market rates to the greatest extent possible.

But regardless of the rate standard invoked by the CRB (or for that matter, a rate court),

a critical aspect of the ratesetting analysis is comparison of the requested rates with

relevant market benchmarks, to the extent they exist. In the case of compulsory

licensing, this is an elusive enterprise, since there are no freely negotiated licenses to

inform the tribunal.

As noted above, the Office believes that all potentially informative benchmarks should

be reviewed and evaluated in the ratesetting process. An advantage of the proposed

opt-out system is that there would be a greater likelihood that actual market

benchmarks would exist to inform the ratesetting tribunal. Even where rates remain

subject to government oversight, the Office believes that copyright policy—and

specifically the desire to fairly compensate creators—will be better served by a greater

opportunity to establish rates with reference to real market transactions.

868

867

Section 115 already recognizes that a voluntary agreement can supersede the statutory rate. 17

U.S.C. § 115(c)(3)(E)(i). As a practical matter, however, while voluntary rates for uses subject to

mandatory licensing may be lower, they will not exceed the statutorily fixed rate because the user

may always resort to the compulsory process.

868

Of course, this was the concept pursued by the publishers who withdrew from ASCAP and

BMI to negotiate separate rates with Pandora. There, as explained above, the court rejected two

of the proffered benchmarks due to what it viewed as coercive conduct on the part of the

publishers in the negotiation process. The CRB, too, is free to reject benchmarks that it perceives

to be unreasonable or otherwise without merit. Music Choice v. Copyright Royalty Board, Nos. 13-

1174, 13-1183, 2014 WL 7234800, at *7 (D.C. Cir. Dec. 19, 2014) ( “The [CRJs] were within their

broad discretion to discount [SoundExchange’s proposed] benchmarks and look elsewhere for

guidance,” as the CRJs’ “mandate to issue determinations . . . does not hamstring the Judges

when neither party proposes reasonable or comparable benchmarks.”). Copyright owners would

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U.S. Copyright Office Copyright and the Music Marketplace

Interim Rates

There is no current process for establishing an interim rate under the section 115 license.

As with performance rights, the Office believes there should be a simple and expeditious

procedure available to have the CRB establish a temporary mechanical rate for a new

user pending final resolution of the applicable royalty by agreement of the parties or

through a ratesetting proceeding.

Audit Right d.

Publishers and songwriters have long complained about the lack of an audit right under

section 115.

869

In addition to monthly statements of use, the statute provides that each

licensee must provide to the copyright owner a cumulative annual statement that is

certified by a CPA.

870

But section 115 confers no express right for a copyright owner to

audit a licensee’s statements.

871

Although section 114 does not include such an express audit right, it does provide that

the CRB shall “establish requirements by which copyright owners may receive

reasonable notice of the use of their sound recordings under [section 114], and under

which records of such use shall be kept and made available by entities performing

sound recordings.”

872

Based on this authority, the CRB has promulgated regulations to

permit audits of royalty payments of statutory licensees by SoundExchange.

873

Notably,

there is parallel language in section 115, though it is limited to reporting in connection

with the making of DPDs, and no equivalent royalty verification rules have been

promulgated by the CRB under that provision.

874

Regardless of any other potential adjustments to section 115, the Office believes that the

mechanical licensing system should be amended to provide for an express audit right

of course need to ensure that they proceeded carefully and independently in their dealings with

licensees so as not to undermine the value of their agreements for ratesetting purposes.

869

See, e.g., Castle First Notice Comments at 2-3; NMPA & HFA First Notice Comments at 14-15.

870

In a notable departure from the terms of section 115, HFA, which licenses mechanical rights on

behalf of numerous publishers, does not rely upon the submission of certified annual statements

but instead conducts royalty examinations of significant licensees to verify their payments.

871

By contrast, the section 111 and 119 cable and satellite compulsory licenses, as well as the

Audio Home Recording Act (“AHRA”), provide for a royalty verification process for the benefit of

1003(c)(2) (manufacturers of digital audio recording devices and media).

872

Id. § 114(f)(4)(A).

873

37 C.F.R. §§ 380.6, 380.15, 380.25.

874

17 U.S.C. § 115(c)(3)(D).

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U.S. Copyright Office Copyright and the Music Marketplace

covering the full range of uses under section 115, with the particular logistics of the

audit process to be implemented by regulation.

875

The Office was not made aware during the study of any audit issue in relation to the

PROs.

876

But the Office notes that in any updated system, it would be critical for

income as well (which could be combined under a bundled license). Audit activities

could perhaps be coordinated through the GMRO; once an audit was noticed by one

MRO, others could choose to participate in the audit process, sharing in its costs and any

recovery.

877

This type of coordinated audit process has been implemented under the

cable and satellite licenses as well as under the AHRA.

878

Sunset of Existing Section 115 Licenses e.

PRO licenses typically have an initial term of up to five years.

879

A licensee may

therefore need to renegotiate its license with one or more PROs every several years. For

this reason, while specific details would undoubtedly need to be addressed, existing

875

In light of the Office’s primary responsibility under the existing section 115 framework for

determining the requirements for statements of account, it may be sensible to assign rulemaking

responsibility for audits of these statements to the Office rather than the CRB. See 17 U.S.C. §

115(c)(5); id. § 803(c)(3) (CRBs may specify recordkeeping requirements as part of a ratesetting

determination); see also Division of Authority Between the Copyright Royalty Judges and the

2008) (explaining responsibilities of the Office versus the CRB in this area).

876

It appears that currently, PROs do not have any significant audit rights, compelling them to

accept “payments at best-effort levels and face value, but not necessarily accurate.” Derek

Crownover, Small Music Publishers Face Uphill Battle, T

ENNESSEAN (Aug. 14, 2014),

http://www.tennessean.com/story/money/industries/music/2014/08/15/small-music-publishers-

face-uphill-battle/14075783/. In fact, the ASCAP consent decree merely suggests that ASCAP

“may require its . . . licensees to provide ASCAP with all information reasonably necessary to

administer the per-program or per-segment license,” while the BMI consent decree has no such

requirement. ASCAP Consent Decree § VIII.C; BMI Consent Decree.

877

Publishers who had negotiated direct licenses with digital providers would be responsible for

managing their own audits in keeping with their individual contracts.

878

See 37 C.F.R. § 201.30 (setting forth the procedure for verification of statements of account

submitted by cable operators and satellite carriers).

879

See ASCAP Consent Decree § IV.D (ASCAP is prohibited from “[g]ranting any license to any

music user for rights of public performance in excess of five years’ duration.”). This restriction is

not found in the BMI Consent Decree, although the Office understands that BMI’s licensing

practices tend to track ASCAP’s in this regard, perhaps due to the fact that “the DOJ often takes

the view that BMI and ASCAP should operate under similar rules.” BMI First Notice Comments

at 16. It is the Office’s further understanding that such licenses may be subject to automatic

extensions unless terminated by either the PRO or licensee.

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PRO licenses would not appear to present an obstacle to implementing the changes

proposed here. A license granted under section 115, on the other hand, does not have an

end date. A question therefore arises as to how the millions of existing section 115

licenses would be retired.

The Office believes there is an answer to this question—as, apparently, do the digital

companies who have advocated for a new blanket system (as well as the publishers that

have advocated for an end to section 115 altogether). Significantly, the rates and terms

in a section 115 license do not continue in perpetuity but instead are adjusted every five

years in accordance with the CRB’s statutory schedule.

880

Thus, there can be no

expectation on the part of a licensee that particular rates or terms will continue beyond

the five-year statutory period.

In sunsetting the song-by-song licensing system, there would need to be a period of

transition, of course, during which the user would apply for licenses from the several

MROs. Assuming, however, that that period of transition were tied to the then-

applicable rate period, the changeover should not harm any legitimate expectation

concerning rates.

4. Section 112 and 114 Licenses

One of the few things that seems to be working reasonably well in our licensing system

is the statutory license regime under sections 112 and 114, which permits qualifying

digital services to engage in noninteractive streaming activities at a CRB-determined (or

otherwise agreed) rate. The section 112 and 114 licenses—administered by

SoundExchange, a nonprofit entity designated by the CRB—cover both internet and

satellite radio providers and certain subscription music services. Although the differing

ratesetting standards for these licenses—as well as some of the rates established under

those standards—have been a source of controversy, from the record in this study, the

licensing framework itself is generally well regarded.

Recording artists, as well as backup musicians and vocalists, appreciate the fact that they

are paid their respective shares of royalties for digital performances under the statutory

formula administered by SoundExchange.

881

SoundExchange deducts a modest

880

Notably, because HFA licenses incorporate the key aspects of section 115, they too are subject

to the periodic statutory rate adjustments.

881

Section 114 provides that 45% of royalties are to be paid to the featured artist, 2.5% to the

union that represents nonfeatured musicians, and 2.5% to the union for nonfeatured vocalists,

with the remaining 50% paid to the owner of the sound recording, typically a record label. 17

U.S.C. § 114(g)(2).

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administrative fee from distributed royalties—currently approximately 4.5%—to offset

its costs of operations.

882

SoundExchange engages in significant efforts to locate and register artists whose

royalties it is holding. By regulation, unattributed royalties that remain unclaimed after

a period of at least three years may be used to help defray SoundExchange’s ongoing

administrative expenses.

883

In recent years, the pool of unclaimed royalties that are three

or more years old has ranged as high as $31 million dollars.

884

By comparison, however,

SoundExchange’s annual distributions totaled $773 million in 2014.

885

Scope of Licenses a.

Notwithstanding the comparatively positive reviews of the section 112 and 114 licenses,

there are a few ways in which some have suggested they should be tweaked.

Adjust to Include Terrestrial

In contrast to the general sentiments of musical work owners, some independent record

labels and artists—who may be more challenged in negotiating with music services than

their larger counterparts, and also like being paid through SoundExchange—have

suggested that the section 112 and 114 compulsory licenses be expanded to cover

interactive streaming in addition to noninteractive models.

886

Digital providers, too,

would welcome such a change.

887

882

SoundExchange First Notice Comments at 4.

883

37 C.F.R. § 380.8.

884

Press Release, SoundExchange, SoundExchange Releases List of Recording Artists and Record

Labels with Unclaimed Digital Performance Royalties (Aug. 15, 2012), http://www.

soundexchange.com/pr/soundexchange-releases-list-of-recording-artists-and-record-labels-with-

unclaimed-digital-performance-royalties/. SoundExchange recently reallocated $9.3 million from

its unclaimed royalty pool to its administrative fund. Glenn Peoples, SoundExchange Finally

Releases Old, Unclaimed Royalties, B

ILLBOARD (Jan. 31, 2014), http://www.billboard.com/biz/

articles/news/5893782/soundexchange-finally-releases-old-unclaimed-royalties.

885

See Glenn Peoples, SoundExchange Paid Out a Whopping $773 Million in 2014, BILLBOARD (Jan.

29, 2015), http://www.billboard.com/articles/business/6457827/soundexchange-digital-

performance-royalty-distributions-2014.

886

See FMC First Notice Comments at 11-12; Kohn First Notice Comments at 13-14; SAG-AFTRA

& AFM First Notice Comments at 6; see also A2IM First Notice Comments at 5 (supporting a

narrower definition of “interactive”).

887

See Tr. at 138:19-139:09 (June 4, 2014) (Lee Knife, DiMA) (“The idea that we [DiMA services]

have to go to all of these different people, depending on whether you’re interactive, you’re

noninteractive, whether you’re downloading, whether you’re streaming it and the download is

available to be heard while it’s downloading . . . most of my services want to or do engage in all

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U.S. Copyright Office Copyright and the Music Marketplace

While the Office understands these points of view, it seems unlikely as a political matter

that the major record labels could be persuaded to give up their current ability to

negotiate such rates in the open market. Moreover, the Office does not perceive that the

voluntary market for licensing of sound recording rights is not functioning.

That said, assuming Congress broadens the sound recording performance right to

include terrestrial broadcasts, in keeping with the principle that analogous uses should

be treated alike, it would seem only logical that terrestrial uses should be included

under the section 112 and 114 licenses. The CRB would be in the best position to

establish equitable rates to apply to both over-the-air and internet radio.

Qualifying Versus Nonqualifying Services

The section 112 and 114 licensing framework excludes interactive streaming and

imposes additional technical requirements as well on those seeking a statutory license.

While licensees complain about the constraints of section 114, on the other side of the

coin, questions arise as to how much control a listener should be able to have over a

customized radio playlist before the service is considered to be offering more of an on-

demand than passive experience.

Section 114 defines an interactive service in relevant part as “one that enables a member

of the public to receive a transmission of a program specially created for the recipient, or

on request, a transmission of a particular sound recording, whether or not part of a

program, which is selected by or on behalf of the recipient.”

888

In 2009, the Second

Circuit Court of Appeals held that the Launchcast music service—which did not offer

on-demand streaming but customized its programming for recipients based on their

individual ratings of songs—was not interactive within the meaning of this definition.

889

As a result of this precedent, internet radio services offering customized listening

experiences are able to operate under the compulsory license regime.

Some question the Second Circuit’s interpretation of the line between interactive and

noninteractive streaming.

890

As articulated by the RIAA, “[t]he [Launch Media] decision

has emboldened services to offer listeners an increasingly personalized listening

experience under color of the statutory license, and all but extinguished voluntary

of those different activities at once. We’d love to be able to just get a license for music and simply

report what the type of use was and pay for it.”).

888

17 U.S.C. § 114(j)(7).

889

Launch Media, 578 F.3d at 164.

890

See RIAA First Notice Comments at 33-34; SAG-AFTRA & AFM First Notice Comments at 5-6;

see also NARAS First Notice Comments at 5; NAB First Notice Comments at 4; NRBMLC First

Notice Comments at 24; NPR First Notice Comments at 5; SRN Broadcasting First Notice

Comments at 1.

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licensing of personalized streaming services at a premium to the statutory rate.”

891

The

RIAA’s chief concern appears to be that the rate for customized radio is the same as that

for completely nonpersonalized offerings.

While the Office has some reservations about the interpretation of section 114 by the

Launch Media court—which seems somewhat in tension with the statutory language—

there appears to be no overwhelming entreaty to remove custom radio from the

statutory regime.

892

Within that regime, however, it may be appropriate to distinguish

between custom and noncustom radio, as the substitutional effect of personalized radio

on potentially competing interactive streaming services may be greater than that of

services offering a completely noncustomized experience. While the issue could be

addressed legislatively, such an approach would not appear to require statutory change,

as the CRB has the discretion to set different rate tiers today when the record supports

such an outcome.

893

For their part, internet providers have criticized the constraints that section 114 imposes

on services that seek to operate under the compulsory license.

894

These include the

“sound recording performance complement,” a restriction that limits the frequency with

which songs from the same album or by the same artist may be played by the service.

895

There is also a statutory prohibition against announcing upcoming songs—a practice

that is common in the terrestrial world, and therefore presents problems for online

simulcasters.

896

Congress included these limitations in the section 114 license to mitigate

the potential substitutional impact of noninteractive streaming on sales or other revenue

streams.

897

In the Office’s view, these sorts of requirements fall into a category of relative fine-

tuning of the license. But for the fact that they are laid out in the statute itself, their

891

RIAA First Notice Comments at 34.

892

See, e.g., id. (“While, at this juncture, we do not necessarily advocate excluding from the

statutory license services that have been generally accepted as operating within the statutory

license based on the [Launch Media] decision, we do think it is important, at a minimum, that

services offering more functionality, such as personalization features, should pay higher rates.”).

893

See 17 U.S.C. § 114(f)(1)(A)-(2)(A) (rates and terms “shall distinguish among different types of .

. . services in operation”); id. § 803(c)(3) (CRB’s determination to be supported by written record).

894

See NAB First Notice Comments at 4; NRBMLC First Notice Comments at 24; NPR First Notice

Comments at 5; SRN Broadcasting First Notice Comments at 1.

895

17 U.S.C. § 114(j)(13).

896

Id. § 114 (d)(2)(C)(ii); see also, e.g., NAB First Notice Comments at 4-5; NRBMLC First Notice

Comments at 24; NPR First Notice Comments at 5; SRN Broadcasting First Notice Comments at

897

See H.R. REP. NO. 104-274, at 13-15, 20-21.

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particulars would seem to be more appropriately the province of regulation. As

suggested below, the Office believes that in updating the music licensing system,

Congress should commit more of its nuances to administrative oversight. The technical

conditions for eligibility under the section 112 and 114 licenses would seem to fall into

this category, as the effectiveness and impact of these provisions has likely changed, and

will continue to change, over time.

Finally, some have suggested a modification of the provisions of sections 112 and 114

that permit the making of server—or “ephemeral”—copies to facilitate licensed services.

These parties seek to confirm that multiple server copies may be made and retained

indefinitely by a licensed service.

898

Although the main provision at issue—17 U.S.C. §

112(e)—is less than a model of clarity,

899

the Office is not aware that the imprecision has

resulted in any real-world disputes, and does not see this as an especially pressing

issue.

900

Nonetheless, it would probably be worthwhile in any general update of

sections 112 and 114 to refine the statutory language with respect to the number and

retention of server copies so as to eliminate any doubt as to the operation of the section

112 license.

Ratesetting b.

The embattled ratesetting standards for internet and satellite radio—section 801(b)(1)

versus willing buyer/willing seller—are discussed at some length above in connection

with overall questions of licensing parity. As explained there, the Office believes that

government ratesetting processes for both sound recordings and music should be

conducted under a single, market-oriented standard. Accordingly, in the Office’s view,

898

CTIA First Notice Comments at 16-18; NAB First Notice Comments at 2, 7; Music Choice First

Notice Comments at 11-13; DiMA Second Notice Comments at 18.

899

Section 112(e) somewhat cryptically indicates that only a single phonorecord (i.e., server copy)

can be made “unless the terms and conditions of the statutory license allow for more.” 17 U.S.C. §

112(e).

900

A larger question may be whether the provisions of the section 112 license pertaining to the

copies made to support section 114 services should be folded into section 114 to create a truly

unified license covering both performances and necessary reproduction rights. As it currently

stands, the CRB is obligated in the relevant ratesetting proceedings to set a separate (and in

practice, essentially nominal) rate for the ephemeral uses. See 17 U.S.C. § 112(e)(3);

SoundExchange, Inc. v. Librarian of Congress, 571 F.3d 1220, 1225-26 (D.C. Cir. 2009) (remanding to

the CRB to specify a royalty for the use of the ephemeral recordings); Determination of Rates and

Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services, 75 Fed.

Reg. 5513 (Feb. 3, 2010) (setting a separate rate for the 112(e) license). The proportion of royalties

payable under section 112 is of some economic consequence, however, as unlike section 114

royalties—which are paid directly to performing artists and musicians as well as to record

labels—section 112 royalties are paid only to sound recording owners. See Review of Copyright

Royalty Judges Determination, 73 Fed. Reg. at 9146. Because it was not a focus of discussion

during the study, the Office has not formed an opinion on this.

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U.S. Copyright Office Copyright and the Music Marketplace

the section 112 and 114 rates currently set under the 801(b)(1) standard (i.e., those

applicable to satellite radio and pre-existing subscription services) should be migrated to

the willing buyer/willing seller standard or some alternative formulation aimed at

establishing rates equivalent to those that would be negotiated in the free market.

901

The

Office further recommends that ratesetting should occur on an “as-needed” basis, as

described above.

Producer Payments c.

The Office notes the further concern of some that the section 112 and 114 royalty

allocations do not recognize the contributions of sound recording producers, who in

many instances not only supervise, but also have significant creative input into, finished

recordings. Despite the fact that many producers are creators of sound recordings in

their own right, they are not among the parties entitled by statute to direct payment by

SoundExchange.

902

Compensation of producers is contractually based. They may be paid an up-front fee for

their efforts and/or receive a share of the artist’s future royalties.

903

In some cases, an

artist may provide a letter of direction requesting SoundExchange to pay the producer’s

share of the artist royalties collected by SoundExchange, which SoundExchange will

honor.

904

NARAS has suggested that this informal practice—which is not contemplated

by the statutory payment mechanism set forth in section 114—be recognized through a

legislative amendment. In NARAS’ words, this will provide producers “the same fair,

direct-payment option available to performers.”

905

Because the producer’s share comes out of the featured artist’s statutory entitlement,

such recognition would not require a change in the current statutory allocation, but

would merely clarify the authority of SoundExchange to honor a letter of direction.

901

Section 114 provides for an interim ratesetting process for new services. See 17 U.S.C. §

114(f)(2)(C) (allowing copyright owners or new services to initiate out-of-cycle proceeding). It

does not provide for expedited proceedings, however. The Office did not hear much about the

use or efficacy of this process in the course of its study, perhaps because it is rarely invoked. As

discussed in connection with musical work performance and mechanical licenses, however, the

Office believes it is important to have a cost-effective and expeditious interim ratesetting

procedure, which could be implemented for the section 112 and 114 licenses as well under the

Office’s proposed system.

902

These include sound recording owners, featured artists, and unions representing nonfeatured

musicians and vocalists. 17 U.S.C. § 114(g)(2).

903

PASSMAN at 121-126.

904

2013 SoundExchange Letter of Direction.

905

See NARAS First Notice Comments at 5-6.

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U.S. Copyright Office Copyright and the Music Marketplace

Though it would be beneficial to hear more from artists on this issue,

906

the Office agrees

that NARAS’ proposal to confirm the existing practice through a technical amendment

of the statute merits consideration.

Termination Provision d.

Unlike section 115, sections 112 and 114 do not include a right to terminate a licensee

that fails to account for and pay royalties. This not only severely undermines the ability

of SoundExchange to police noncompliant licenses, but also allows such licensees to

continue to exploit valuable sound recordings without payment to their owners. As

SoundExchange explains it:

Noncompliance with statutory license requirements is commonplace. For

2013, approximately a quarter of royalty payments were not made on

time; two-thirds of licensees required to deliver reports of the recordings

they used have not delivered at least one required report; and at least one

quarter of such licensees have not delivered any such reports at all.

907

SoundExchange observes that it tries to work with problem licensees to improve their

compliance. But when such efforts prove unsuccessful, SoundExchange—and the

justification for continued licensing of a user that is not meeting its obligations. The

Office therefore agrees with SoundExchange that the section 112 and 114 statutory

licenses should be amended to include a termination provision akin to that in section

115.

908

5. Public and Noncommercial Broadcasting

Public broadcasters—including noncommercial educational broadcasters—lament the

inefficiencies and limitations of the statutory provisions in sections 114 and 118 that

906

Recording artists did not comment on this proposal in the course of the study.

907

SoundExchange First Notice Comments at 5.

908

Section 115 provides that:

If the copyright owner does not receive the monthly payment and the monthly

and annual statements of account when due, the owner may give written notice

to the licensee that, unless the default is remedied within thirty days from the

date of the notice, the compulsory license will be automatically terminated. Such

termination renders either the making or the distribution, or both, of all

phonorecords for which the royalty has not been paid, actionable as acts of

infringement under section 501 and fully subject to the remedies provided by

sections 502 through 506.

17 U.S.C. § 115(c)(6).

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govern their use of music content.

909

The Office concurs that these provisions are

unwieldy and believes that they should be reviewed and updated to better reflect

Congress’ desire to accommodate public broadcasting activities.

910

Especially in light of the relatively low royalty rates paid by public broadcasters, it

makes little sense to require them to engage in a multitude of negotiations and

ratesetting proceedings in different fora—before the CRB under sections 112 and 114 for

digital sound recording performance rights, before the CRB under section 118 for over-

the-air musical work performance and associated reproduction rights, under the consent

decrees for digital musical work performance rights covered by ASCAP and BMI, and

through private negotiations for musical work performance and reproduction rights

falling outside of the foregoing categories.

911

Instead, the Office suggests that the

ratesetting processes applicable to public broadcasters be consolidated within a unified

license structure under section 118 under the auspices of the CRB.

912

By separating out

all noncommercial uses for consideration under a single framework, the royalty rates for

public broadcasters would likely be much more efficiently resolved.

913

909

See EMF First Notice Comments at 5-15; NPR First Notice Comments at 4-7; NRBNMLC First

Notice Comments at 14-22; PTC First Notice Comments at 3-12.

910

See, e.g., H.R. REP. NO. 94-1476, at 117 (noting “that encouragement and support of

noncommercial broadcasting is in the public interest” and “that the nature of public broadcasting

does warrant special treatment in certain areas”).

911

See generally NRBNMLC First Notice Comments at 14-15.

912

See EMF First Notice Comments at 14-15. In so amending the section 118 license to cover both

sound recording and public performance rights, it may be appropriate to expand the antitrust

exemption currently contained in section 118 to facilitate collective negotiation of rights between

noncommercial users and copyright owners for uses outside the statutory license as well. See

PTC First Notice Comments at 11.

913

Compare NRBNMLC First Notice Comments at 14 (noting that “[f]or the last several license

terms, religious broadcasters . . . have been able to agree upon rates and terms with ASCAP, BMI,

and SESAC without the need for a rate-setting proceeding”), with EMF First Notice Comments at

8-9 (noting that the section 114 rulemaking joins both commercial and noncommercial entities,

and that noncommercial entities “are rarely able to negotiated a pre-litigation settlement—forcing

their participation in the CRB litigation process”).

In establishing a unified license for public broadcast activities, the Office sees no need to depart

from its view that, as with other statutory uses, the CRB should consider such rates under a

generally applicable, market-based standard. Experience with the section 112 and 114 ratesetting

process for noncommercial entities has shown, for example, that the willing buyer/willing seller

standard can adequately account for the limited financial resources of, and other factors

particular to, noncommercial users. See NRBNMLC First Notice Comments at 11-13 (noting that

the CARP and CRB have consistently set lower rates for noncommercial broadcasters).

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In reforming the section 118 license, Congress should ensure it appropriately facilitates

digital transmissions by public broadcasters, including the streaming of archived

programming.

914

But absent a significant change in congressional policy, the Office sees

no need to expand the statutory license to include permanent uses such as downloads or

physical products, as some noncommercial broadcasters have suggested.

915

The current

statutory provisions for public broadcasting focus on performances in the course of

over-the-air programming, rather than the distribution of copyrighted works.

Permanent uses by noncommercial entities—or even on-demand streaming of individual

songs outside of the context of the original programming—could displace commercial

sales, making it less clear that special treatment is appropriate.

D. Licensing Efficiency and Transparency

There seems to be universal agreement among industry participants that accurate,

comprehensive, and accessible licensing information, as well as transparent usage and

payment data, are essential to a better functioning music licensing system.

1. Industry Data

Publicly Accessible Database a.

Some stakeholders have suggested that the government—for example, the Copyright

Office—could undertake the task of creating and maintaining a comprehensive database

of musical work and sound recording information, including a system of standard

identifiers.

916

As appealing as such a vision may be, the Office believes that it would not

be the best result for the twenty-first century marketplace to have the government start

from scratch. The relevant universe of music data comprises tens of millions of musical

works, sound recordings and information about them. Setting aside any legal

impediments, as a practical matter, it would be extremely challenging for the

government to gather, ingest, and standardize this ocean of information to be made

available within a useful time frame. Any such database would be highly dynamic and

require a constant flow of information from MROs, publishers and others concerning

newly created works, transfers of ownership, and changes in licensing authority to be

kept up to date. These are functions already performed in varying degrees by existing

private organizations in collaboration with individual stakeholders.

In light of the above considerations, the Office believes that any solution to the music

data problem should not compete with, but instead draw upon, existing industry

resources. As a threshold matter, any centralized database should be closely tied to the

914

NRBNMLC First Notice Comments at 14.

915

See NPR First Notice Comments at 7.

916

ABKCO First Notice Comments at 4; DiMA Second Notice Comments at 5.

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interests of the copyright owners and licensees it serves. That said, the government

should establish incentives through the statutory licensing regime to encourage private

actors to coordinate their efforts and contribute to a publicly accessible and authoritative

database. In other words, there is a role for both the government and private sector

alike.

917

Adoption of Data Standards b.

The lack of unique and universally employed identifiers for the millions of musical

works and sound recordings in the marketplace has been a topic of discussion—and

source of discouragement—among industry participants for many years. As a result,

there have been some laudable efforts within the industry to address the data problem

by persuading market participants to adopt standard identifiers and messaging formats,

with some amount of success. The DDEX messaging system appears to have emerged as

a leading industry standard for the formatting and delivery of metadata relating to

transactions involving digital music.

918

A more recent example of collaboration is the

MusicMark initiative, which would rationalize and reconcile sometimes conflicting PRO

song data among the American and Canadian PROs ASCAP, BMI, and SOCAN.

919

But despite these efforts, so far, no comprehensive solution to the data issue has

emerged.

920

In part, this appears to be a problem of coordinating private actors, many of

whom are invested in, and understandably rely upon, their own data systems and do

not wish to undermine these important assets. It is also a legacy problem, in that much

of the data used today originated in the pre-digital era, when standardization and

interoperability were not critical concerns. For example, the industry did not implement

standard conventions for the treatment of artist or songwriter names. Some actors may

917

This does not mean that the Copyright Office should not itself seek to maintain more robust

music data. To the extent it has the resources to modernize its systems to accommodate more

comprehensive data, it should. For example, the copyright registration database could be

modified to incorporate identifiers such as ISRCs and ISWCs. The Office’s paper-based

recordation system should be reengineered to become an electronic process so it is easier to

record and research transfers of ownership. Both of these changes would help would-be

licensees locate music owners. The Office has been reviewing these and other technology and

data-driven questions in separate public processes. See, e.g., B

RAUNEIS; see also Maria Pallante,

Next Generation Copyright Office: What it Means and Why it Matters, 61 J. Copyright Soc’y U.S.A. 213

(2014).

918

About DDEX, DDEX, http://www.ddex.net/about-ddex (last visited Jan. 9. 2015).

919

Tr. at 263:21-264:03 (June 24, 2014) (Stuart Rosen, BMI); see also ASCAP, BMI and SOCAN

Collaborate on MusicMark, ASCAP (Apr. 2, 2014), http://www.ascap.com/playback/2014/04/action/

ascap-bmi-socan-musicmark-collaboration.aspx.

920

PRS ‘disappointed’ at Global Repertoire Database collapse, MUSIC ALLY.

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U.S. Copyright Office Copyright and the Music Marketplace

see little short-term gain to be realized from the substantial investment of resources it

would take to clean up and harmonize older records.

Some stakeholders advocate for an entirely new approach to tracking creative works and

usage, suggesting that we should look to new technologies to attach unique identifiers to

each different version of a song, each different recording of that song, each individual’s

interest in that song, and each individual use of that song.

921

One interesting proposal

would rely on audio fingerprinting rather than just metadata to identify songs.

922

The

Office hopes that these or other technological innovations may someday be deployed to

the benefit of the music marketplace.

For now, though, the Office believes it is important to focus on what might be

reasonably achieved in the near term—again taking into consideration and capitalizing

upon industry practices as they exist today. To this end, the Office solicited comments

on the most commonly used and useful identifiers, and received helpful guidance from

a number of parties.

923

Based on these comments, it appears that the most critical and

widely (though not universally) used identifiers are, in the case of musical works, the

ISWC, and in the case of sound recordings, the ISRC. The Office believes these two

identifiers should, over a period of time (e.g., five years), become required elements

within the proposed GMRO-managed database, as described below.

A more recent standard is the ISNI, which can be used to identify songwriters and

recording artists, and is gaining acceptance in the industry. There appears to be general

agreement that, as new users and uses continue to proliferate, and individual writers

and artists seek to participate in the marketplace, it is of critical importance to be able to

identify creators unambiguously.

924

ASCAP and BMI have already begun implementing

the use of ISNI.

925

This is another data standard that the Office believes should be

encouraged and possibly made mandatory over a plausible time frame.

921

Music Licensing Hearings at 71-72 (statement of Jim Griffin, OneHouse).

922

Tr. at 243:13-18 (June 17, 2014) (Helene Muddiman, CEO, Hollywood Elite Composers); see also

How Content ID Works, G

OOGLE, https://support.google.com/youtube/answer/2797370?hl=en (last

visited Jan. 23, 2015).

923

Of particular assistance was the student submission from the Pipeline Project 2014, Belmont

University’s Mike Curb College of Music Business and Entertainment, which provided an

insightful summary and analysis of relevant data standards based on a series of interviews the

students conducted with music industry professionals. See generally Pipeline Project Second

Notice Comments.

924

Kristin Thomson, Metadata for Musicians.

925

ASCAP Second Notice Comments at 8; see also Pipeline Project Second Notice Comments at 4-

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U.S. Copyright Office Copyright and the Music Marketplace

The ISWC standard and the ISRC standard are internationally recognized, as is the ISNI.

The ISWC, developed by CISAC, is assigned by individual qualified regional or local

numbering agencies; in the U.S. and Canada, ASCAP is the appointed ISWC

administrator.

926

The ISRC, administered by IFPI, is allocated by appointed regional

agencies in each country; the U.S. ISRC agency is the RIAA.

927

The ISNI standard,

launched with CISAC’s participation, is meant to replace existing, disparate

identification standards for individual creators.

928

ISNIs are assigned to U.S. authors by

one or more designated private registration agencies.

929

The Office’s focus on the above standards does not mean that others are unimportant or

irrelevant.

930

Legacy standards remain useful for particular entities,

931

and new

standards may come into play. The possibility of identifying sound recordings and

musical works through audio-based sampling technologies is especially intriguing.

Based on the current state of affairs, however, the Office believes that the most realistic

strategy to address the data issues plaguing the music industry at present would be to

strongly incentivize the universal adoption and dissemination of at least the three data

standards described above. Beyond this, as discussed below, it would make sense to

provide for regulatory authority to allow for the consideration and adoption of

additional data standards over time as appropriate.

2. Fair Reporting and Payment

Writer and Artist Shares a.

Throughout the study, a paramount concern of songwriters and recording artists is

transparency in reporting and payment. As digital licensing deals multiply and increase

in complexity, it can become quite difficult to follow the money. Songwriters and artists

926

Frequently Asked Questions, ISWC INTERNATIONAL AGENCY, http://www.iswc.org/en/faq.html

(last visited Jan. 23, 2015); Pipeline Project Second Notice Comments at 5.

927

Obtaining Code, USISRC.ORG, http://www.usisrc.org/about/obtaining_code.html (last visited

Jan. 23, 2015); Pipeline Project Second Notice Comments at 6.

928

See Gatenby & MacEwan at 5-6.

929

The first U.S. registration agency is Bowker, an affiliate of the research and technology

company ProQuest. See id.; Bowker Becomes First ISNI Registration Agency in the U.S., B

OWKER

(June 21, 2012), http://www.bowker.com/en-US/aboutus/press_room/2012/pr_06212012a.shtml;

Bowker, Use of ISNI Is Growing Fast Among Authors, Says New Bowker Analysis, Y

AHOO FINANCE

(May 7, 2014), http://finance.yahoo.com/news/isni-growing-fast-among-authors-144800650.html.

930

As suggested below, additional standards that might be useful in either the short or long term

could be evaluated and potentially adopted by regulation.

931

For example, if IPIs and UPCs (discussed above) continue to be relevant in some contexts, they

might be considered as potential additional data elements to be collected in the GMRO database.

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U.S. Copyright Office Copyright and the Music Marketplace

want to ensure that they understand the royalty scheme, are able to track the use of their

works, and are paid what they are owed.

In the case of performance royalties, such concerns are greatly diminished when the

songwriter or artist is paid through a PRO or SoundExchange. PROs employ

distribution rules that are generally known by their members,

932

while SoundExchange

allocates royalties according to the statutory formula. In the case of a direct deal,

however, the label or publisher is obligated only by the terms of the artist or songwriter

agreement, which may not expressly address these issues.

933

Of particular concern are the sometimes sizeable advances against future royalties that

are paid by online services to major record labels and music publishers, and whether

and how these are reported to and shared with artists and writers. Sometimes, if royalty

obligations are less than anticipated, such an advance may not be fully recouped by the

service during the licensing period, so there are leftover funds. In such a situation, there

may be no clear understanding—or contractual provision—that addresses whether those

funds should be paid out to the songwriter or artist, or if so, on what basis. A recent

example of the advance issue cited by songwriters is a direct deal between the publisher

Sony/ATV and DMX music service for public performance rights, in which Sony/ATV

apparently received a large advance from the service—possibly in exchange for a lower

royalty rate.

934

Songwriters worry that they are not able to monitor this type of

arrangement to ensure that they receive their fair share of the total consideration paid

for the use of their works.

Also concerning to music creators is the fact that labels and publishers are now known

to take equity stakes in online services as part of their licensing arrangements. For

example, the major labels together reportedly negotiated a nearly 18% stake in Spotify.

935

932

ASCAP’s Survey and Distribution System: Rules & Policies, ASCAP (June 2014),

http://www.ascap.com/~/media/files/pdf/members/payment/drd.pdf; Royalty Policy Manual, BMI,

http://www.bmi.com/creators/royalty_print (last visited Jan. 16, 2015). Although songwriters

appear generally to have confidence that the PROs are reporting to them accurately, there are

some writers who take issue with the distribution rules themselves. For example, ASCAP and

BMI pay substantial bonuses for current hits, which reduce the royalty pool for “evergreen” titles.

In addition, PROs rely on sampling techniques rather than census data to calculate royalties in

many contexts, which some complain may cause less popular songs to be overlooked. Tr. at

22:11-27:01 (June 5, 2014) (Royal Wade Kimes, Wonderment Records) (“We do need a collective,

ASCAP, BMI, somebody to collect the stuff, but we also need it to be distributed rightly.”).

933

Indeed, at least until recently, songwriter agreements with publishers simply assumed

payment of the writer’s share of performance royalties by a PRO. See, e.g., Tr. at 71:13-72:03 (June

5, 2014) (Brittany Schaffer, NMPA/Loeb & Loeb LLP).

934

MMF & FAC Second Notice Comments at 16-17, 47 n.70; SGA Second Notice Comments at 14-

15, Exhibit 2 n.7.

935

See Lindvall, Behind the Music: The Real Reason Why the Major Labels Love Spotify.

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U.S. Copyright Office Copyright and the Music Marketplace

Questions arise as to how such equity deals are (or are not) reported to artists and

songwriters, and whether the value received by the label or publisher impacts the

royalties that are paid.

936

Again, the artist or songwriter contract may not address such

issues.

937

These concerns must be addressed as part of any updated licensing framework,

especially one that allows publishers to opt out of the statutory licensing system and

pursue direct deals. As mentioned above, under any such deal, songwriters should have

the option of being paid their writer’s share of performance royalties directly through

their preferred MRO. That is, even if the music service is paying the publisher’s

royalties (including mechanicals) to the publisher directly, it would transmit a copy of

its usage report and the writer’s share of performance royalties to the MRO for the MRO

to administer.

938

The Office trusts that such an approach could be acceptable to the

publishers, since the major publishers who have been contemplating withdrawal from

the PROs appear also to be considering the possibility of continuing administration of

royalty distributions by the PROs under directly licensed deals.

939

While there has been less focus on this issue in relation to SoundExchange—which is not

facing a large-scale “withdrawal” problem

940

—the Office notes that the same principle

936

See A2IM Second Notice Comments at 5-7 (explaining that some of the largest digital music

services have entered into direct licensing deals with record labels or publishers that include

compensation in the form of advances or equity, but that such compensation is not necessarily

shared with creators); SGA Second Notice Comments at 14-15.

937

Notably, however, music publishers have addressed this issue in their negotiated streaming

settlement under section 115, since adopted as regulation. 37 C.F.R. § 385. The definition of

revenue to which the percentage royalty rate is applied in the streaming regulations requires

record companies to account for “anything of value given for the identified rights to undertake

the licensed activity, including, without limitation, ownership equity, monetary advances, barter

or any other monetary and/or nonmonetary consideration . . .” Id. § 385.11, 385.21 (definition of

“applicable consideration”).

938

To ensure the transparency of such a hybrid arrangement, the withdrawing publishers should

make the material financial terms of their direct deals—the royalty rates, advances, and any other

consideration from the licensee attributable to the use of the songwriter’s work—available to their

songwriters.

939

See Pandora Ratesetting, 6 F. Supp. 3d at 337; see also Tr. at 38:06-08 (June 17, 2014) (David

Kokakis, UMPG); BMI Second Notice Comments at 14 (“In the context of partial rights

withdrawal, BMI can still assist publishers in providing certain royalty administration services

for their direct licenses covering the withdrawn rights, with administration terms and fees as

agreed to by the parties. BMI would continue to provide its customary licensing and distribution

services to the publishers and songwriters with regard to all other aspects of the public

performing right.”).

940

In this regard, however, it should be noted that there has recently been some direct licensing of

noninteractive digital performance rights outside of SoundExchange. As mentioned above,

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U.S. Copyright Office Copyright and the Music Marketplace

should apply there. To the extent record companies enter into direct licensing

relationships with digital providers, artists and musicians should have the option of

continuing to receive their share of royalties through that organization.

Best Practices for Transparency b.

More generally, issues surrounding transparency in reporting and payment by music

publishers and record labels under songwriter and artist agreements are concerns that

might be productively addressed through the consideration and adoption of best

practices to ease friction in this area. In 2009, for instance, record labels and music

publishers agreed to a series of voluntary changes to improve licensing practices and the

flow of royalties under section 115, which have been memorialized in a continuing

memorandum of understanding.

941

A similar effort might be undertaken to establish

best practices to ensure transparency in label and publisher reporting and payment to

creators. The Office hopes that major labels and publishers will consider engaging with

artists and publishers in a voluntary fashion to make progress on these issues in the

private realm.

E. An Updated Music Licensing System

As noted above, nearly ten years ago, music publishers and digital media companies

appealed to Congress to pass SIRA, legislation that would have created a new collective

licensing system under section 115 for the digital use of musical works. While SIRA was

more limited in scope than what would seem to be called for today, it nonetheless

featured some concepts that the Office believes could help to inform a more general

overhaul of our licensing system.

iHeartMedia has entered into licensing agreements with WMG and some independent labels for

deals covering both terrestrial and internet radio. Christman, Here’s Why Warner Music’s Deal

with Clear Channel Could be Groundbreaking for the Future of the U.S. Music Biz (Analysis). Pandora

recently struck a direct deal with Merlin, an entity that negotiates on behalf of independent

record labels; under this arrangement, though, Pandora agreed to continue to pay artist royalties

through SoundExchange. Glenn Peoples, Pandora Signs First Direct Label Deal with Merlin,

ILLBOARD (Aug. 6, 2014), http://www.billboard.com/articles/business/6207058/pandora-label-

deal-merlin.

941

See NMPA Late Fee Program, NMPA LATE FEE SETTLEMENT.COM, http://www.

nmpalatefeesettlement.com/index (last visited Jan. 22, 2015) (explaining the terms of the MOU in

which record labels and music publishers (represented by RIAA and NMPA/HFA respectively)

agreed to improve mechanical licensing practices and encourage prompt resolution of disputes);

see also Memorandum of Understanding (MOU 2), NMPA

LATE FEE SETTLEMENT.COM,

http://www.nmpalatefeesettlement.com/docs/mou2.pdf (last visited Jan. 22, 2015) (in which the

record labels and music publishers extended the 2009 MOU through 2017).

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U.S. Copyright Office Copyright and the Music Marketplace

First, SIRA recognized that it could be appropriate to allow more than one entity

(referred to as a “designated agent”) to administer licenses, so long as each such entity

represented at least a certain prescribed share of the publishing market. Second, SIRA

would have offered licensees the opportunity to obtain licenses on a blanket, rather than

song-by-song, basis by serving notice on the designated agents. Third, SIRA recognized

that one such agent (the “general designated agent”) should serve as a default licensing

entity for publishers that had not selected a different agent. And finally, SIRA provided

for each designated agent to maintain a database listing ownership information for the

musical works it administers.

942

While there was disagreement about the details of

SIRA, these basic organizing principles were appealing to many.

943

The Office’s

proposal for an updated licensing framework also draws upon these concepts.

But even though SIRA may represent a good starting point, it is only that. As digital

models have proliferated, the drawbacks of our current system have become more

pronounced. The intervening decade has produced a greater sense of urgency

concerning the strains on the current system.

Stakeholders focus in particular on the lack of reliable licensing data, which leads to

inefficiencies and failures in the licensing process. The Office agrees with commenting

parties that much of what is ailing our system would be greatly ameliorated if all those

who needed it had access to authoritative data concerning the ownership of musical

works and sound recordings. In addition, because digital services typically receive only

track-based information for sound recordings that is not tied to the underlying musical

work, there needs to be an efficient mechanism for licensees to associate the sound

recordings they use with the musical works they embody.

1. MROs

Under the Office’s proposal, except to the extent they chose to opt out of the blanket

statutory system, publishers and songwriters would license their public performance

and mechanical rights through their MROs.

944

As explained above, an MRO would have

942

SIRA, H.R. 5553.

943

See HFA, Legislative News: Section 115 Reform Act of 2006 (SIRA) Introduced, SOUNDCHECK, June

2006, at 1, available at https://secure.harryfox.com/public/userfiles/file/Soundcheck/

viewSoundCheck606.pdf (“While [DiMA, the NMPA, and the RIAA] have not reached complete

agreement on all aspects of this legislation, we are optimistic that in the coming weeks we will

work together with Chairman Smith and Representative Berman to ultimately pass historic

legislation that will promote greater innovation and competition among digital music providers,

deliver fair compensation to music creators and most importantly, greatly expand music choice

and enjoyment for music fans.”).

944

Regardless of opt-out status, however, just as is the case today, a willing publisher could agree

to a voluntary license with a willing licensee outside of the statutory regime. But in order to

require the licensee to negotiate outside of the statutory process, the publisher would need to

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U.S. Copyright Office Copyright and the Music Marketplace

the ability to administer, and bundle, performance and mechanical rights on behalf of

the publishers and songwriters it represented. It would also collect and distribute the

royalties due under such licenses.

945

An MRO could be any entity representing the musical works of publishers and

songwriters with a market share in the mechanical and/or performance market above a

certain minimum threshold, for example, 5%. Existing rights organizations, such as

ASCAP, BMI, HFA and others, could thus qualify as MROs. Each MRO would enjoy an

antitrust exemption to negotiate performance and mechanical licenses collectively on

behalf of its members—as would licensee groups negotiating with the MROs—with the

CRB available to establish a rate in case of a dispute.

946

But MROs could not coordinate

with one another and, as discussed above, would be subject to at least routine antitrust

oversight to guard against anticompetitive behavior. They would also be subject to

potential CRB ratesetting for all uses of their members’ works except for those that had

been withdrawn.

Each MRO would be required to supply a complete list of the publishers, works,

percentage shares and rights it represented, as well as the MRO’s licensing contact

information, to the GMRO, and would be obligated to keep that information current.

The requirement to identify the titles and writers of represented works essentially tracks

what is required today under the ASCAP consent decree and has long been voluntarily

provided by the PROs and HFA through their public “lookup” databases.

947

The critical

assert its opt-out right. Additionally, to effectuate such a voluntary arrangement, the publisher

would need to notify the MRO of the agreement, so that the MRO could make appropriate

adjustments to its collection and distribution processes.

945

Under the new MRO-based system, record labels would no longer engage in “pass-though”

licensing of musical works as they are entitled to do today under section 115. Third-party

services would instead seek blanket licenses from the MROs, or directly from any publishers who

had opted out. Apart from long-time concerns by publishers and songwriters about their

inability to receive direct payment from digital services under the pass-through regime, the

possibility of varying rates under the updated licensing framework being proposed would

seemingly render pass-through licensing inefficient at best. In their comments, record labels

indicated a willingness to eliminate this aspect of section 115. See RIAA Second Notice

Comments at 19 (“The major record companies generally support in principle the elimination of

pass-through licensing.”).

946

The section 112, 114, and 115 licenses contain antitrust exemptions to allow copyright owners

and users to negotiate collectively, and the PROs are permitted to do so under the consent

decrees. See 17 U.S.C. §§ 112(e)(2), 114(e)(1), 115(c)(3)(B).

947

See ASCAP Consent Decree § X; Ace Title Search, ASCAP, https://www.ascap.com/Home/ace-

title-search/index.aspx (last visited Jan. 29, 2015); BMI Repertoire, BMI, http://repertoire.bmi.com/

startpage.asp (last visited Jan. 29, 2015); HFA, Songfile Search, S

ONGFILE, https://secure.harryfox.

com/songfile/public/publicsearch.jsp (last visited Jan. 16, 2015).

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U.S. Copyright Office Copyright and the Music Marketplace

difference is that the publicly accessible data would be available in a more sophisticated

database format that would facilitate automated matching functions, bulk licensing

processes, and reconciliation of third-party databases.

MROs would also be responsible for notifying the GMRO of any members that had

exercised opt-out rights by providing the relevant opt-out information, including where

a direct license might be sought, for the central database so potential licensees would

know where to go for license authority. Additionally, under requirements that would be

phased in over time, MROs would need to supply the ISWC—and over time, the ISNI—

identifiers for each of the works they represented. As everyone appears to agree, the

move to unique identifiers as a primary means to recognize both musical works and

sound recordings is essential to an efficient licensing system.

But MROs would not have to share all of their data for purposes of the public database.

For example, there would be no need for an MRO to provide contact information for its

members (other than those that opted out) since the MRO would be responsible for

distributing royalties under the licenses it issued. Details about contractual

arrangements between publishers and their songwriters that the MROs might need for

their own distribution purposes would seem to be unnecessary to provide for public

use. Under the Office’s approach, MROs would only be required to furnish such

information as would be necessary to facilitate accurate licensing transactions and usage

reporting in a system of multiple MROs. As suggested below, the specific data to be

supplied could be subject to regulatory oversight and adjusted over time.

2. The GMRO

Even though the preponderance of licensing activity would be carried out by the MROs

and directly licensing publishers, the hub of the new licensing structure would be the

GMRO. Similar to SoundExchange, the GMRO (“SongExchange”?) would be a non-

profit entity designated, and regulated, by the government.

948

The GMRO would be

overseen by a board that included representatives from both the music publishing and

songwriter communities.

By virtue of maintaining authoritative and accessible ownership data, the GMRO would

help to coordinate licensing and royalty payments across the MROs and individual

publishers. But it would not serve as a centralized collection facility other than with

respect to unidentified royalty recipients. The Office believes that adding an additional

administrative layer to core royalty collection and distribution functions would add time

948

SoundExchange is regulated by the CRB as the designated collective. See, e.g., 37 C.F.R. §§

380.2(c), 380.4.

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U.S. Copyright Office Copyright and the Music Marketplace

and expense to these processes and should be avoided if possible.

949

At the same time,

the GMRO would serve as the recipient for payments on behalf of unidentified owners.

Data-Related Responsibilities a.

The GMRO would ingest data from MROs and other authoritative sources to create its

master database. The GMRO database would list the publishers, musical works,

percentage shares and rights represented by the various MROs, along with prescribed

identifiers such as ISWCs and ISNIs. In addition, the database would flag opt-out

publishers, the specific rights and works that were opted out, and provide the

publishers’ licensing contact information.

In addition to musical work data, it seems that the GMRO could and should also

incorporate sound recording data into the public database, including track titles, record

labels, featured artists, play times and ISRCs. It is the Office’s understanding that

SoundExchange currently has identification and ownership information—including

ISRCs—for approximately 14 million sound recordings.

950

The GMRO could absorb this

data from SoundExchange. Through SoundExchange’s continuing administration of the

section 112 and 114 licenses, an ISRC requirement for remaining tracks—as well as the

ISNI standard—could be phased in under those licenses, with the ongoing results to be

shared with the GMRO.

951

Like SoundExchange, the GMRO would play an active role in gathering missing data,

reconciling conflicting data, and correcting flawed data. It would need to establish a

process to handle competing ownership claims as necessary.

But perhaps most important among the data-related responsibilities of the GMRO

would be to gather or generate “matches” of musical works with sound recordings.

There is simply no easy means for licensees to acquire generalized data identifying the

musical works embodied in individual sound recordings. Some private entities such as

HFA have made substantial progress on this front through a combination of automated

and manual matching protocols, but there is no comprehensive source for this

information, and even HFA has yet to match millions of titles.

952

949

SIRA took a similar approach by providing for direct payment to the individual designated

agents. SIRA, H.R. 5553.

950

SoundExchange Second Notice Comments at 4-5.

951

SoundExchange is currently exploring making its data available to others. See id. at 5

(“SoundExchange is actively exploring means by which it might provide interested services a

means of accessing [its sound recording] data for use in identifying to SoundExchange with

greater precision the recordings they use under the statutory licenses.”).

952

Tr. at 217:02-218:16 (June 23, 2014) (Christos P. Badavas, HFA).

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U.S. Copyright Office Copyright and the Music Marketplace

A matching database would represent a huge advance in music licensing, as it would

enable digital services efficiently to identify musical works and their owners based on

the tracks they are using. Undoubtedly it is a significant undertaking, but given an

appropriate level of resources it would seem to be achievable, at least with respect to the

most frequently used songs. As HFA reports, 1-2 million sound recordings account for

almost 95% of usage in a typical digital music service.

953

Happily (and not surprisingly),

it is the most commercially valuable sound recordings and musical works that tend to be

the easiest to identify and associate with one another.

On the licensee side of the equation, whenever an ISWC, ISRC or ISNI (or other

prescribed identifier) appeared in the database, it would be a required element in a

licensee’s report under a section 114 or 115 license. The consistent use of these standards

would undoubtedly facilitate the GMRO’s efforts to match musical works to sound

recordings and distribute royalties to their owners.

Finally, as noted above, the song data and licensing information collected by the GMRO

would be publicly accessible—not only in the form of individual records through a

“lookup”-style database, but also in bulk form and/or via APIs that would allow

licensees the ability to use it to update their records or perform matching or other

functions relating to their licensing needs.

Default Licensing and Payment b.

Notwithstanding the GMRO database and other available resources, there would still be

works (and shares of works) for which the owners were not identified.

954

The GMRO

would therefore also serve as the default licensing and collection agent for musical

works (or shares of works) that licensees were unable to associate with an MRO or opt-

out publisher. Services relying on blanket performance and/or mechanical licenses for

musical works that had usage-based payment obligations would transmit records of use

for unmatched works, along with associated payments, to the GMRO.

955

The GMRO

953

NMPA & HFA First Notice Comments at 13.

954

This is a particular concern with respect to new releases, as publisher and songwriter

disagreements over their respective ownership shares in songs often delay the finalization of

mechanical licenses for months or even years after the record is released. Tr. at 340:05-341:14

(June 23, 2014) (Andrea Finkelstein, SME).

955

Since royalty obligations might vary among MROs and publishers, the default payments

would need to be made in an amount sufficient to cover the highest potential rate payable to any

entity with which the licensee had a licensing arrangement. In some cases, a blanket license

might require payment of a set amount for the reporting period in question regardless of usage

(for example, a fixed percentage of the service’s revenues, as in the case of ASCAP’s license with

Pandora), with the royalty pool to be allocated by the collecting agent. In such a case, there

would be no need to pay into the GMRO, and any reporting issues would need to be addressed

by the MRO.

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U.S. Copyright Office Copyright and the Music Marketplace

would then attempt to identify the MRO or individual rightsowner itself and, if

successful, pay the royalties out.

956

If unsuccessful in its research efforts, the GMRO

would add the usage record to a public unclaimed royalties list and hold the funds for

some period of time—e.g., three years—to see if a claimant came forward. As is the case

with SoundExchange, after that period, the GMRO could use any remaining unclaimed

funds to help offset the costs of its operations. Such a default licensing and payment

option would provide protection for licensees—by reporting unmatched works and

paying the associated royalties to the GMRO, they could avoid liability for infringement

for those uses.

But any such system would require appropriate incentives to ensure that both licensees

and publishers were holding up their respective ends of the bargain. Setting aside any

general funding obligations in relation to the GMRO, which are discussed below, the

Office believes that licensees should be required to pay an administrative fee (perhaps

assessed on a per-title basis) for any unmatched uses reported to the GMRO.

957

addition to encouraging due diligence on the part of licensees to locate missing

information before resorting to the default system, such fees would help underwrite the

GMRO’s efforts to locate and pay rightsholders.

At the same time, MROs and their members should also be encouraged to maintain

complete and reliable data with the GMRO. The primary incentive to do so, of course,

would be to facilitate prompt and accurate payments by licensees. In this regard, the

Office believes it could be useful to establish phased-in compliance targets over a period

of several years for the provision of the most critical publisher data, including missing

ISWCs, to the GMRO.

958

If, after an appropriate review of the situation and an

956

Any difference between the royalties paid to the GMRO and the actual rate of a subsequently

identified publisher could be contributed to the GMRO to offset costs. In the case of a publisher

not affiliated with an MRO and hence not subject to any rate agreement, the publisher should

receive the lowest potential rate that the licensee might pay for that use and the GMRO could also

deduct a reasonable administrative fee not greater than any fee currently charged by any of the

MROs. This latter rule would incentivize publishers to affiliate with an MRO of their choice

rather than rely on the much less efficient GMRO claims procedure.

957

A somewhat analogous fee is currently required for the filing of an NOI with the Office under

section 115 in lieu of serving it on a licensee when the licensee cannot be found in the Office’s

records (though no royalty payment is required). See 37 C.F.R. § 201.3(e)(1). As noted above,

large-scale licensees appear to be reluctant to avail themselves of this process due to the filing

fees (which reflect the costs incurred by the Office in administering these notices, as per 17 U.S.C.

§ 708(a)). The level of the administrative fee that would be assessed by the GMRO—which

would receive more general funding from users, as discussed below—would need to be carefully

assessed in relation to its purpose.

958

By way of illustration, in year one, 20% of works listed by an MRO might be required to

include the ISWC; in year two, 40%; and so on up to near-total compliance.

195

U.S. Copyright Office Copyright and the Music Marketplace

opportunity to rectify concerns, an MRO were found to fall short of the mark, any

licensee required to pay the GMRO’s administrative fee for unmatched works to that

MRO would be entitled to recoup some portion of that fee (say half) from its royalty

payments to that MRO pending correction of the problem.

Resources and Funding c.

A question that will inevitably arise in any discussion concerning an overhaul of our

music licensing system is how the new system—more specifically, the startup costs and

various activities of the GMRO—would be funded. The Office has some suggestions to

offer on this point.

First, the Copyright Office believes that both copyright owners and users should bear

the costs of the new system, as both groups will share in its benefits. Traditionally,

publishers and songwriters have underwritten much of the cost of licensing

performance and mechanical rights and distributing royalties through commissions paid

to the PROs and HFA. But record labels and digital services have also borne significant

administrative costs in gathering and compiling the data necessary to obtain and report

under licenses.

As envisioned by the Office, the GMRO would build and maintain a public database of

ownership and licensing information for musical works and sound recordings. As part

of this obligation, it would be responsible for matching sound recording data to musical

works. The GMRO would also be responsible for collecting and distributing royalties

for unclaimed works. These are substantial undertakings. Some licensees have

expressed willingness to help fund a more workable system.

959

The Office believes that

publishers and songwriters will also need to contribute, although much of their

contribution might be in the form of shared data.

As explained above, under the Office’s proposal, every MRO, as well as SoundExchange,

will be required to contribute key elements of data to create and maintain a centralized

music database. MROs will be responsible for allocating and distributing the vast

majority of royalties (and will charge commissions to publishers and songwriters for

those services). In exchange for these contributions on the part of copyright owners, the

Office believes that the primary financial support for the data-related and default

licensing activities of the GMRO should come from fees charged to users of the section

112, 114, and 115 licenses.

959

See, e.g., DiMA Second Notice Comments at 5 (suggesting that the government “designate a

small portion of license fees” paid by licensees to cover costs); RIAA First Notice Comments at 22

(“Record companies are prepared to contribute information concerning new works, and

potentially a share of start-up costs.”).

196

U.S. Copyright Office Copyright and the Music Marketplace

Although music users would be paying royalties directly to MROs and individual

publishers—and to SoundExchange as well—they would have a separate obligation to

pay a licensing surcharge to the GMRO in recognition of the value it would be providing

to the licensee community. The licensing surcharge might, for example, be assessed as a

small percentage of royalties due from the licensee under its section 112, 114, and/or 115

statutory licenses, including any direct deals for equivalent rights. In order to fund

startup costs, licensees could perhaps contribute a lump sum against future surcharge

assessments, to be recouped over time.

The surcharge to be paid by statutory licensees could be determined by the CRB through

a periodic administrative process based on the GMRO’s costs, and would be offset by

other sources of funding. For example, in addition to the generally applicable

surcharge, as explained above, the Office believes that individual licensees should be

charged an administrative fee in connection with reporting and paying unattributed

uses to the GMRO.

960

Publishers not affiliated with an MRO who claimed works from

the unmatched list would also be expected to pay a processing fee, as they would at an

MRO. Nonstatutory licensees could be required to pay the GMRO’s reasonable costs for

the bulk provision of data. Such fees—which would help to offset the costs of the

GMRO—could be considered by the CRB in establishing the surcharge.

An additional source of funding would be any royalties that remained unclaimed by

publishers after the prescribed holding period (perhaps three years). Such unattributed

monies—or “black box” funds—would also be available to offset the GMRO’s

administrative costs. As with the GMRO’s other sources of income, these funds, too,

could be considered by the CRB in establishing the licensing surcharge.

961

3. The CRB

New Ratesetting Protocol a.

Under the Office’s proposal, ratesetting by the CRB would shift from a five-year cycle to

a system under which the CRB would step in only as necessary—that is, only when an

MRO or SoundExchange and licensee could not agree on a rate.

The unfortunate reality is that the costs of ratesetting are very high, whether the

proceeding occurs in federal court or before an administrative tribunal. The Office

believes that the current approach under the section 112, 114, and 115 licenses—under

which rates are required to be established for the full spectrum of uses for the upcoming

five years—is probably not the most efficient use of resources. Such an approach

960

As noted above, an MRO that failed to contribute adequate data to the GMRO could be

required to absorb some portion of such administrative fees.

961

If the black box funds were ever to exceed the GMRO’s costs, the excess could be distributed to

publishers by the GMRO based on a market-share-based allocation process.

197

U.S. Copyright Office Copyright and the Music Marketplace

presents the nontrivial problem of how to identify, evaluate and price still-nascent

business models. Even if they are identified, some of these uses might be easily settled

outside of the context of a CRB proceeding. In the case of existing models, the extant

rates may be sufficiently satisfactory for both sides to continue in effect. Greater

flexibility in the ratesetting process would allow the ratesetting body to address only

those rates that were worthwhile to litigate.

In support of its proposal, the Office observes that ASCAP and BMI have operated

under such an ad hoc system in the federal rate courts, with only a relatively small

number of their rates actually litigated. A likeminded CRB approach could yield more

voluntary agreements and less litigation. Further, licensees would no longer have to

shoehorn themselves into an existing rate category to take advantage of statutory

licensing, because MRO licenses could be specifically tailored to address the nuances of

the business model at hand.

Last but not least, it is difficult to see how an integrated licensing framework such as

that proposed by the Office could function under two different ratesetting paradigms, as

exist in their separate worlds today. In order to bundle performance and mechanical

licensing—or, as discussed below, sound recording and musical work rights—in an

efficient manner, there should be a unified ratesetting process. The CRB would face

enormous administrative challenges if it had to administer both periodic and ad hoc

ratesetting proceedings simultaneously.

962

All-In Rates for Noninteractive Streaming b.

During the study, various commenting parties floated the suggestion of all-in blanket

licensing that would encompass both sound recording and musical work rights.

963

Our

current framework presents seemingly insuperable hurdles to achieving what many

view as a tantalizing goal. Even under the framework proposed by the Office—which

notwithstanding publisher opt-out rights still contemplates ratesetting for musical

works that has no equivalent on the sound recording side—it would be difficult to

implement all-in rates on a broad basis.

962

In this regard, Congress might also wish to amend the statutory framework for the CRB to

allow for greater flexibility in staffing. Currently, the statute is highly specific, in that it provides

for three full-time staff members: one to be paid no more than the basic rate for level 10 of GS-15

of the General Schedule; one to be paid between the basic rate for GS-13 and level 10 of GS-14;

and one to be paid between the basic rate for GS-8 and level 10 of GS-11. 17 U.S.C. § 802(b), (e)(2).

Especially if its duties were expanded to include additional licensing activities and fee-setting

responsibilities, the CRB would seemingly be better served with a statute that provided more

discretion with respect to the number and seniority of the legal staff that assist the three Judges.

963

See, e.g., RIAA First Notice Comments at 14-17 (proposing a blanket licensing solution for all

rights implicated when using musical works); Tr. at 194:05-18 (June 4, 2014) (Scott Sellwood,

Google/YouTube) (“I certainly like the idea of an all-in valuation of the music copyright.”).

198

U.S. Copyright Office Copyright and the Music Marketplace

In one area, however—the licensing of noninteractive streaming uses by internet

services, satellite and terrestrial radio, and others—such a model might be achievable.

Here the Office has suggested that government supervision of the public performance

right be moved from the federal rate courts to the CRB. Accordingly, both sound

recording owners and musical work owners would be subject to CRB ratesetting to the

extent they were unable to negotiate agreements with digital providers. The Office

believes that any such proceedings could potentially be combined.

Taking the suggestion of the RIAA, for example, record labels and music publishers

could agree up front to a split of royalties as between them for the category of use to be

litigated.

964

They could then participate jointly in the ratesetting proceeding vis-à-vis the

licensee. The licensee’s focus before the CRB would thus be on its total royalty

obligation, rather than the particular amounts to be paid to labels or publishers. Even

barring an up-front agreement between the labels and publishers, ratesetting for the

service in question might still proceed on an all-in basis, with the CRB to establish the

split between sound recordings and musical works in a separate phase of the proceeding

that did not include the licensee.

GMRO Surcharge c.

As noted above, under the Office’s proposal, the GMRO would be funded in part by a

licensing surcharge to be paid directly by licensees to the GMRO. The Office believes

that the CRB, with its in-house economic expertise, would be well equipped to

determine the surcharge through a periodic review process. That process would be

conducted separate and apart from any ratesetting activities. Indeed, an important

element of such a proceeding would be to preclude any consideration of royalty rates in

establishing the licensing surcharge (and vice versa). The surcharge would be set

independently, based on licensee data and the GMRO’s costs and capital needs.

965

Procedural Improvements d.

In addition to the substance of the CRB’s ratesetting determinations, a number of

seasoned stakeholders addressed the procedural rules that currently govern the CRB’s

work. The CRB is constrained by procedural mandates set forth in section 803 of the

including such matters as filing rules for participants, the timing and content of direct

cases, the handling of various evidentiary and discovery matters, and settlement

964

RIAA First Notice Comments at 15-17. Any such agreement concerning the royalty split

would presumably need to address the parties’ obligations to each other in relation to a

settlement rather than a litigated outcome.

965

As it does in CRB proceedings today, in considering appropriate fees, the CRB could impose

safeguards to protect against public dissemination of confidential business information.

199

U.S. Copyright Office Copyright and the Music Marketplace

negotiations.

966

This sort of procedural detail is unusual in a federal statutory scheme

and is more typically left to regulation or the discretion of the tribunal.

Stakeholders complain that the current CRB system is unduly burdensome and

expensive. Currently, ratesetting participants are required to put in their written direct

statement before they conduct discovery—that is, they are required to construct and

support their rate proposals to the CRB without the benefit of economic information

from the other side.

967

This is completely counterintuitive to anyone familiar with

ordinary litigation practice.

In keeping with this construct, ratesetting proceedings are divided into separate direct

and rebuttal phases, with discovery conducted in the first phase and potentially in the

rebuttal phase as well.

968

Parties may seek to amend their rate proposals in response to

what they learn in discovery.

969

In practical effect, this means there are two trial

proceedings, with overlapping arguments and evidence, instead of one. As might be

expected, stakeholders would prefer to have the issues for trial fully joined and

addressed in single proceeding. The Office is sympathetic to these concerns and

believes the CRB process should be modified so it more closely resembles typical

litigation. As has been suggested by some, this could include greater reliance on the

Federal Rules of Civil Procedure and Federal Rules of Evidence, albeit with appropriate

modifications (such as relaxation of hearsay rules).

970

Multifactor ratesetting standards also contribute to the length and expense of

proceedings, as parties feel compelled to furnish evidence and argument on each

statutorily prescribed factor. A move to a simpler standard such as willing

buyer/willing seller—perhaps unembellished by specific considerations (in contrast to

the standard as currently embodied in section 114

971

)—might also help to streamline the

ratesetting process by permitting each side to focus on the most salient aspects of their

case.

Many CRB participants complained that the existing process does not facilitate early

settlement. In order for a settlement to be the basis for an industrywide rate, it must be

adopted by the CRB.

972

The CRB does not appear always to be comfortable in adopting

settlement agreements that settle less than the entire proceeding—for example, a

settlement among fewer than all participants—while the rest of the proceeding remains

966

See generally 17 U.S.C. § 803.

967

Id. § 803(b)(6)(C)(ii).

968

Id. § 803(b)(6)(C)(i)-(ii), (iv).

969

Id. § 803(b)(6)(C)(i).

970

See id. § 803(b)(6)(C)(iii) (allowing hearsay to be admitted upon CRB discretion).

971

Id. § 114(f)(2)(B).

972

Id. § 801(b)(7).

200

U.S. Copyright Office Copyright and the Music Marketplace

pending.

973

And the record shows that participants feel obligated to continue litigating

until a settlement is adopted.

974

This is not an efficient system. The Office agrees that

this should be rectified by clarifying the statutory provisions governing the CRB to favor

partial settlements at any stage of the proceeding when requested by the settling

participants.

975

Finally, while the Office believes that the high-level procedural concerns described

should be addressed by legislative amendments, Congress may also wish to remove

unnecessary procedural details in the statute that are better left to regulation. The CRB

should have the latitude to develop specific procedural rules—and modify them as

appropriate—within the basic parameters set forth in the statute.

4. Regulatory Implementation

Should Congress decide to restructure the music licensing system, the Office believes

that it might be most productive for any resulting legislation to set out the essential

elements of the updated system and leave the particulars to regulation. Such a construct

would likely be more realistic to enact than an exhaustive statutory prescription—

especially in the case of music licensing, where the particulars can be overwhelming. In

addition to whatever legislative advantages it might confer, a more general approach

would have added benefit of flexibility, since regulations can be adjusted over time to

address new developments and unforeseen contingencies.

973

The CRB has occasionally adopted settlements resolving some but not all rate concerns. See,

e.g., Adjustment of Rates and Terms for Preexisting Subscription and Satellite Digital Audio Radio

Services, 72 Fed. Reg. 71,795 (Dec. 19, 2007); Determination of Rates and Terms for Preexisting

Subscription Services and Satellite Digital Audio Radio Services, 73 Fed. Reg. 4080. But adoption

of partial settlements is not the norm.

974

See, e.g., Tr. at 122:15-22 (June 23, 2014) (Colin Rushing, SoundExchange) (“But it was this

group, College Webcasters, Inc. We entered into a settlement with them. We also did a

settlement with NAB. Neither of these settlements were actually adopted by the CRB until the

very end of the proceeding. And so we found ourselves unsure of what, you know, whether the

settlements were, actually, going to be adopted.”); Tr. at 99:16-100:03 (June 16, 2014) (Brad

Prendergast, SoundExchange) (The current system “leaves a lot of parties still in the litigation

proceeding, when they’d rather not be.”); Tr. at 129:17-130:03 (June 23, 2014) (Steven Marks,

RIAA) (“I also think that the CRB, it would be nice to have, maybe, some set times for the CRB to

rule on settlements that are proposed. We had, our last mechanical settlement that was offered, a

delay of almost a year.”).

975

Notably, this problem would also likely be ameliorated by a move to an “as-needed”

ratesetting system as recommended by the Office, where rate determinations would bind only

the participants to the proceeding (notwithstanding their potential influence on other market

actors). Such proceedings would focus on narrower disputes and should therefore be easier to

resolve than proceedings covering a multitude of rates and stakeholders.

201

U.S. Copyright Office Copyright and the Music Marketplace

Logically, the Copyright Office should have primary regulatory responsibility for the

many issues that would need to be addressed in implementing a new statutory

framework. For example, the Office could establish rules for the provision of data to the

GMRO, licensee reporting requirements, and collective audits. It could also promulgate

technical requirements for the statutory licenses, with the power to update such

specifications as necessary.

The CRB, too, would have regulatory responsibilities. In addition to its periodic review

of the surcharge to be assessed by the GMRO, the CRB would enact rules that would

govern the filing and conduct of the ratesetting proceedings it would oversee. Like the

responsibilities.

5. Further Evaluation

Should Congress choose to embark upon a series of changes to our licensing system

such as those described above, the Office recommends that the new system be evaluated

by the Copyright Office after it has been in operation for a period of several years.

Assuming that the new licensing framework includes an opt-out mechanism as

described above, the efficacy of that process would be of particular interest. If the opt-

out system were found to be having adverse effects on the marketplace, Congress could

consider narrowing those rights. If, on the other hand, the opt-out option were working

well, Congress might wish to expand it to other categories.

202

c o p y r i g h t a n d t h e m u s i c m a r k e t p l a c e

appendix a federal register notices 

. s . c o p y r i g h t o f f i c e

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14739

Federal Register / Vol. 78, No. 51 / Monday, March 17, 2014 / Notices

search_cfm under the searchable listing

of determinations or by calling the

Office of Trade Adjustment Assistance

toll free at 888–365–6822.

Signed at Washington DC, this 20th day of

February 2014.

Hope D. Kinglock,

Certifying Officer, Office of Trade Adjustment

Assistance.

[FR Doc. 2014–05760 Filed 3–14–14; 8:45 am]

BILLING CODE 4510–FN–P

DEPARTMENT OF LABOR

Employment and Training

Administration

Investigations Regarding Eligibility To

Apply For Worker Adjustment

Assistance

Petitions have been filed with the

Secretary of Labor under Section 221(a)

of the Trade Act of 1974 (‘‘the Act’’) and

are identified in the Appendix to this

notice. Upon receipt of these petitions,

the Director of the Office of Trade

Adjustment Assistance, Employment

and Training Administration, has

instituted investigations pursuant to

Section 221(a) of the Act.

The purpose of each of the

investigations is to determine whether

the workers are eligible to apply for

adjustment assistance under Title II,

Chapter 2, of the Act. The investigations

will further relate, as appropriate, to the

determination of the date on which total

or partial separations began or

threatened to begin and the subdivision

of the firm involved.

The petitioners or any other persons

showing a substantial interest in the

subject matter of the investigations may

request a public hearing, provided such

request is filed in writing with the

Director, Office of Trade Adjustment

Assistance, at the address shown below,

not later than March 27, 2014.

Interested persons are invited to

submit written comments regarding the

subject matter of the investigations to

the Director, Office of Trade Adjustment

Assistance, at the address shown below,

not later than March 27, 2014.

The petitions filed in this case are

available for inspection at the Office of

the Director, Office of Trade Adjustment

Assistance, Employment and Training

Administration, U.S. Department of

Labor, Room N–5428, 200 Constitution

Avenue NW., Washington, DC 20210.

Signed at Washington, DC, this 20th day of

February 2014.

Hope D. Kinglock,

Certifying Officer, Office of Trade Adjustment

Assistance.

Appendix—13 TAA Petitions Instituted

Between 2/10/14 and 2/14/14

TA–W Subject firm (petitioners) Location

Date of

institution

Date of

petition

85059 ................ Avery Dennison (Company) ................................................. Clinton, SC ............................ 02/10/14 02/10/14

85060 ................ Fresenius Medical Care NA (Workers) ................................ Livingston, CA ....................... 02/11/14 02/10/14

85061 ................ IBM (State/One-Stop) ........................................................... San Jose, CA ........................ 02/11/14 02/10/14

85062 ................ Computer Sciences Corporation (State/One-Stop) .............. Oakland, CA .......................... 02/11/14 02/10/14

85063 ................ EPIC Technologies, LLC (Company) ................................... El Paso, TX ........................... 02/11/14 02/10/14

85064 ................ Southside Manufacturing (Workers) ..................................... Blairs, VA .............................. 02/11/14 02/04/14

85065 ................ Woodcraft Industries (Company) .......................................... Belletonte, PA ....................... 02/12/14 02/10/14

85066 ................ Sun Edison (previously MEMC) (State/One-Stop) ............... St. Peters, MO ...................... 02/12/14 02/12/14

85067 ................ FLSmidth Spokane Inc (Workers) ........................................ Meridian, ID ........................... 02/12/14 02/11/14

85068 ................ GE Hitachi Nuclear Energy (Company) ............................... Canonsburg, PA .................... 02/12/14 02/11/14

85069 ................ Allstate Insurance Company (Workers) ............................... Roanoke, VA ......................... 02/12/14 01/28/14

85070 ................ Time Machine, Inc. (Company) ............................................ Polk, PA ................................ 02/14/14 02/12/14

85071 ................ General Electric (GE) (Union) .............................................. Ft. Edward, NY ..................... 02/14/14 02/04/14

[FR Doc. 2014–05758 Filed 3–14–14; 8:45 am]

BILLING CODE 4510–FN–P

LIBRARY OF CONGRESS

[Docket No. 2014–03]

Music Licensing Study: Notice and

Request for Public Comment

AGENCY

: Copyright Office, Library of

Congress.

ACTION

: Notice of Inquiry.

SUMMARY

: The United States Copyright

Office announces the initiation of a

study to evaluate the effectiveness of

existing methods of licensing music. To

aid this effort, the Office is seeking

public input on this topic. The Office

will use the information it gathers to

report to Congress. Congress is currently

conducting a review of the U.S.

evaluate potential revisions of the law

in light of technological and other

developments that impact the creation,

dissemination, and use of copyrighted

works.

DATES

: Written comments are due on or

before May 16, 2014. The Office will be

announcing one or more public

meetings to address music licensing

issues, to take place after written

comments are received, by separate

notice in the future.

ADDRESSES

: All comments shall be

submitted electronically. A comment

page containing a comment form is

posted on the Office Web site at

http://www.copyright.gov/docs/

musiclicensingstudy. The Web site

interface requires commenting parties to

complete a form specifying their name

and organization, as applicable, and to

upload comments as an attachment via

a browser button. To meet accessibility

standards, commenting parties must

upload comments in a single file not to

exceed six megabytes (MB) in one of the

following formats: The Portable

Document File (PDF) format that

contains searchable, accessible text (not

an image); Microsoft Word;

WordPerfect; Rich Text Format (RTF); or

ASCII text file format (not a scanned

document). The form and face of the

comments must include both the name

of the submitter and organization. The

Office will post the comments publicly

on the Office’s Web site in the form that

they are received, along with associated

names and organizations. If electronic

submission of comments is not feasible,

please contact the Office at 202–707–

8350 for special instructions.

FOR FURTHER INFORMATION CONTACT

Jacqueline C. Charlesworth, General

Counsel and Associate Register of

Copyrights, by email at jcharlesworth@

loc.gov or by telephone at 202–707–

8350; or Sarang V. Damle, Special

Advisor to the General Counsel, by

email at [email protected] or by telephone

at 202–707–8350.

SUPPLEMENTARY INFORMATION

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I. Background

Congress is currently engaged in a

comprehensive review of the U.S.

evaluate potential revisions to the law

in light of technological and other

developments that impact the creation,

dissemination, and use of copyrighted

works. The last general revision of the

(‘‘Copyright Act’’ or ‘‘Act’’) following a

lengthy and comprehensive review

process carried out by Congress, the

In 1998, Congress significantly amended

the Act with the passage of the Digital

Millennium Copyright Act (‘‘DMCA’’) to

address emerging issues of the digital

age. Public Law 105–304, 112 Stat. 2860

many sound and enduring principles,

and has enabled the internet to flourish,

Congress could not have foreseen all of

today’s technologies and the myriad

ways consumers and others engage with

creative works in the digital

environment. Perhaps nowhere has the

landscape been as significantly altered

as in the realm of music.

Music is more available now than it

has ever been. Today, music is delivered

to consumers not only in physical

formats, such as compact discs and

vinyl records, but is available on

demand, both by download and

streaming, as well as through

smartphones, computers, and other

devices. At the same time, the public

continues to consume music through

terrestrial and satellite radio, and more

recently, internet-based radio. Music

continues to enhance films, television,

and advertising, and is a key component

of many apps and video games.

Such uses of music require licenses

from copyright owners. The

mechanisms for obtaining such licenses

are largely shaped by our copyright law,

including the statutory licenses under

Sections 112, 114, and 115 of the

government-regulated licensing regimes

for certain uses of sound recordings and

musical works.

A musical recording encompasses two

distinct works of authorship: The

musical work, which is the underlying

composition created by the songwriter

or composer, along with any

accompanying lyrics; and the sound

recording, that is, the particular

performance of the musical work that

has been fixed in a recording medium

such as CD or digital file. The methods

for obtaining licenses differ with respect

to these two types of works, which can

be—and frequently are—owned or

managed by different entities.

Songwriters and composers often assign

rights in their musical works to music

publishers and, in addition, affiliate

themselves with performing rights

organizations (‘‘PROs’’). These

intermediaries, in turn, assume

responsibility for licensing the works.

By contrast, the licensing of sound

recordings is typically handled directly

by record labels, except in the case of

certain types of digital uses, as

described below.

Musical Works—Reproduction and

Distribution. Under the Copyright Act,

the owner of a musical work has the

exclusive right to make and distribute

phonorecords of the work (i.e., copies in

which the work is embodied, such as

CDs or digital files), as well as the

exclusive right to perform the work

publicly. 17 U.S.C. 106(1), (3). The

others to engage in these acts. Id. These

rights, however, are typically licensed

in different ways.

The right to make and distribute

phonorecords of musical works (often

referred to as the ‘‘mechanical’’ right) is

subject to a compulsory statutory

license under Section 115 of the Act.

See generally 17 U.S.C. 115. That

license—instituted by Congress over a

century ago with the passage of the 1909

phonorecord of a musical work has been

distributed to the public in the United

States under the authority of the

a license to make and distribute

phonorecords of that work by serving a

statutorily compliant notice and paying

the applicable royalties. Id.

In 1995, Congress confirmed that a

reproduce and distribute phonorecords

of a musical work, and the Section 115

license, extend to the making of ‘‘digital

phonorecord deliveries’’ (‘‘DPDs’’)—that

is, the transmission of digital files

embodying musical works. See Digital

Performance Right in Sound Recordings

Act of 1995 (‘‘DPRSRA’’), Public Law

104–39, sec. 4, 109 Stat. 336, 344–48; 17

U.S.C. 115(c)(3)(A).

The Copyright

Office has thus interpreted the Section

115 license to cover music downloads

(including ringtones), as well as the

server and other reproductions

necessary to engage in streaming

activities. See In the Matter of

Mechanical and Digital Phonorecord

Under the terms of Section 115, a record

company or other entity that obtains a statutory

license for a musical work can, in turn, authorize

third parties to make DPDs of that work. See 17

U.S.C. 115(c)(3). In such a ‘‘pass-through’’ situation,

the statutory licensee is then responsible for

reporting and paying royalties for such third-party

uses to the musical work owner.

Delivery Rate Adjustment Proceeding,

Docket No. RF 2006–1 (Oct. 16, 2006),

http://www.copyright.gov/docs/

ringtone-decision.pdf; Compulsory

License for Making and Distributing

Phonorecords, Including Digital

Phonorecord Deliveries, 73 FR 66173

(Nov. 7, 2008).

Licenses under Section 115 are

obtained on a song-by-song basis.

Because a typical online music service

needs to offer access to millions of songs

to compete in the marketplace,

obtaining the licenses on an individual

basis can present administrative

challenges.

Many music publishers

have designated the Harry Fox Agency,

Inc. as an agent to handle such song-by-

song mechanical licensing on their

behalf.

The royalty rates and terms for the

Section 115 license are established by

an administrative tribunal—the

—

which applies a standard set forth in

Section 801(b) of the Act that considers

four different factors. These include:

The availability of creative works to the

public; economic return to the owners

and users of musical works; the

respective contributions of owners and

users in making works available; and

the industry impact of the rates.

The Section 115 license applies to

audio-only reproductions that are

primarily made and distributed for

private use. See 17 U.S.C. 101, 115.

Reproductions and distribution of

musical works that fall outside of the

Section 115 license—including ‘‘synch’’

uses in audiovisual media like

Concerns about the efficiency of the Section 115

licensing process are not new. For instance, in

2005, then-Register of Copyrights Marybeth Peters

testified before Congress that Section 115 had

become ‘‘outdated,’’ and made several proposals to

reform the license. See Copyright Office Views on

Music Licensing Reform: Hearing Before the

Subcomm. on Courts, the Internet, and Intellectual

Property of the H. Comm. on the Judiciary, 109th

Cong. 4–9 (2005). In 2006, the House Judiciary

Committee’s Subcommittee on Courts, the Internet,

and Intellectual Property forwarded the Section 115

Reform Act (‘‘SIRA’’) to the full Judiciary

Committee by unanimous voice vote. See H.R. 5553,

109th Cong. (2006). This bill would have updated

Section 115 to create a blanket-style license. The

proposed legislation was not reported out by the

full Judiciary Committee, however.

The Copyright Royalty Board (‘‘CRB’’) is the

latest in a series of administrative bodies Congress

has created to adjust the rates and terms for the

statutory licenses. The first, the Copyright Royalty

Tribunal (‘‘CRT’’), was created in 1976. See Public

Law 94–553, sec. 801, 90 Stat. 2541, 2594–96

(1976). In 1993, Congress replaced the CRT with a

system of ad-hoc copyright arbitration royalty

panels (‘‘CARPs’’). See Copyright Royalty Tribunal

Reform Act of 1993, Public Law 103–198, sec. 2,

107 Stat. 2304, 2304–2308. Congress replaced the

Royalty and Distribution Reform Act of 2004, Public

Law 108–419, 118 Stat. 2341.

See 17 U.S.C. 801(b)(1).

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television, film, and videos; advertising

and other types of commercial uses; and

derivative uses such as ‘‘sampling’’—are

licensed directly from the copyright

owner according to negotiated rates and

terms.

Musical Works—Public Performance.

The method for licensing public

performances of musical works differs

significantly from the statutory

mechanical license provided under

Section 115. Licensing fees for such

performances are generally collected on

behalf of music publishers, songwriters,

and composers by the three major PROs:

the American Society of Composers,

Authors and Publishers (‘‘ASCAP’’),

Broadcast Music, Inc. (‘‘BMI’’), and

SESAC. Songwriters and composers, as

well as their publishers, commonly

affiliate with one of the three for

purposes of receiving public

performance income. Rather than song-

by-song licenses, the PROs typically

offer ‘‘blanket’’ licenses for the full

range of music in their repertories.

These licenses are available for a wide

variety of uses, including terrestrial,

satellite, and internet radio, on-demand

music streaming services, Web site and

television uses, and performance of

music in bars, restaurants, and other

commercial establishments. The PROs

monitor the use of musical works by

these various entities and apportion and

distribute collected royalties to their

publisher, songwriter, and composer

members.

Unlike the mechanical right, the

public performance of musical works is

not subject to compulsory licensing

under the Copyright Act. Since 1941,

however, ASCAP and BMI’s licensing

practices have been subject to antitrust

consent decrees overseen by the

Department of Justice.

These consent

decrees were designed to protect

licensees from price discrimination or

other anti-competitive behavior by the

two PROs. Under the decrees, ASCAP

and BMI administer the public

performance right for their members’

musical works on a non-exclusive basis.

They are required to provide a license

to any person who seeks to perform

copyrighted musical works publicly,

and must offer the same terms to

similarly situated licensees. In addition,

ASCAP’s consent decree expressly bars

See generally United States v. Broadcast Music,

Inc., 275 F.3d 168, 171–72 (2d Cir. 2001)

(describing the history). SESAC, a smaller

performing rights organization created in 1930 to

serve European publishers, is not subject to a

similar consent decree, although it has been

involved recently in private antitrust litigation. See

Meredith Corp. v. SESAC LLC, No. 09–cv–9177,

2014 WL 812795 (S.D.N.Y. Mar. 3, 2014).

it from offering mechanical licenses.

Since 1950, prospective licensees that

are unable to agree to a royalty rate with

ASCAP or BMI have been able to seek

a determination of a reasonable license

fee in the federal district court for the

Southern District of New York.

The two PRO consent decrees were

last amended well before the

proliferation of digital music: The BMI

decree in 1994,

and the ASCAP decree

in 2001.

The consent decrees have been

the subject of much litigation over the

years, including, most recently, suits

over whether music publishers can

withdraw digital licensing rights from

the PROs and negotiate public

performance licenses directly with

digital music services.

Sound Recordings—Reproduction

and Distribution. Congress extended

federal copyright protection to sound

recordings in 1972. That law, however,

did not provide retroactive protection

for sound recordings fixed prior to

February 15, 1972, and such works

therefore have no federal copyright

status.

They are, however, subject to

the protection of applicable state laws

until 2067. See 17 U.S.C. 301(c).

United States v. ASCAP, No. 41–cv–1395, 2001–

2 Trade Cas. (CCH) ¶ 73,474, 2001 WL 1589999, *3

(S.D.N.Y. June 11, 2001). Although BMI has taken

the position that a strict reading of its consent

decree does not bar it from offering mechanical

licenses, it generally has not done so. See Broadcast

Music, Inc., Comments on Department of Commerce

Green Paper 4–5 (Nov. 13, 2013), available at http://

www.ntia.doc.gov/files/ntia/bmi_comments.pdf.

Significantly, musical work owners are

precluded from offering evidence concerning the

licensing fees paid for digital performances of

sound recordings as a point of comparison in the

district court ratesetting proceedings. Section 114 of

the Copyright Act provides that license fees payable

for the public performance of sound recordings may

not be taken into account ‘‘in any administrative,

judicial, or other governmental proceeding to set or

adjust the rates payable to’’ musical work copyright

owners. 17 U.S.C. 114(i).

United States v. Broadcast Music, Inc., No. 64–

cv–3787, 1966 Trade Cas. (CCH) ¶ 71,941 (S.D.N.Y.

1966), as amended, 1996 Trade Cases (CCH) ¶

71,378, 1994 WL 901652 (S.D.N.Y. Nov. 18, 1994).

United States v. ASCAP, No. 41–cv–1395, 2001–

2 Trade Cas. (CCH) ¶ 73,474, 2001 WL 1589999

(S.D.N.Y. June 11, 2001).

See In re Pandora Media, Inc., Nos. 12–cv–

8035, 41–cv–1395, 2013 WL 5211927 (S.D.N.Y.

Sept. 17, 2013); Broadcast Music, Inc. v. Pandora

Media, Inc., Nos. 13–cv–4037, 64–cv–3787, 2013

WL 6697788 (S.D.N.Y. Dec. 19, 2013).

study the ‘‘desirability and means’’ of extending

federal copyright protection to pre-February 15,

1972 sound recordings. Public Law 111–8, 123 Stat.

524 (2010) (explanatory statement). In 2011, the

Office completed that study, issuing a report

recommending that federal copyright protection be

so extended. United States Copyright Office,

Federal Copyright Protection for Pre-1972 Sound

Recordings (2011), available at http://

www.copyright.gov/docs/sound/pre-72-report.pdf.

Thus, a person wishing to digitally perform a

pre-1972 sound recording cannot rely on the

Section 112 and 114 statutory licenses and must

The owner of a copyright in a sound

recording fixed on or after February 15,

1972, like the owner of a musical work

reproduce and distribute phonorecords

embodying the sound recording,

including by means of digital

transmission, and to authorize others to

do the same. 17 U.S.C. 106(1), (3),

301(c). Except in the limited

circumstances where statutory licensing

applies, as described below, licenses to

reproduce and distribute sound

recordings—such as those necessary to

make and distribute CDs, transmit

DPDs, and operate online music

services, as well as to use sound

recordings in a television shows, films,

video games, etc.—are negotiated

directly between the licensee and sound

recording owner (typically a record

label). Thus, while in the case of

musical works, the royalty rates and

terms applicable to the making and

distribution of CDs, DPDs, and the

operation of interactive music services

are subject to government oversight,

with respect to sound recordings,

licensing for those same uses takes place

without government supervision.

Sound Recordings—Public

Performance. Unlike musical works, a

sound recording owner’s public

performance right does not extend to all

manner of public performances.

Traditionally, the public performance of

sound recordings was not subject to

protection at all under the Copyright

Act. In 1995, however, Congress enacted

the DPRSRA, which provided for a

limited right when sound recordings are

publicly performed ‘‘by means of a

digital audio transmission.’’ Public Law

104–39, 109 Stat. 336; 17 U.S.C. 106(6),

114(a). This right extends, for example,

to satellite radio and internet-based

music services.

Significantly,

however, the public performance of

sound recordings by broadcast radio

stations remains exempt under the Act.

17 U.S.C. 114(d)(1).

instead obtain a license directly from the owner of

the sound recording copyright. See Determination

of Rates and Terms for Preexisting Subscription

Services and Satellite Digital Audio Radio Services,

78 FR 23054, 23073 (Apr. 17, 2013) (determination

of the CRB finding that ‘‘[t]he performance right

granted by the copyright laws for sound recordings

applies only to those recordings created on or after

February 15, 1972’’ and adopting provisions

allowing exclusion of performances of pre-1972

sound recordings from certain statutory royalties).

In 1998, as part of the DMCA, Congress

amended Sections 112 and 114 of the Copyright Act

to clarify that the digital sound recording

performance right applies to services like

webcasting. See Public Law 105–304, secs. 402,

405, 112 Stat. 2860, 2888, 2890.

The Copyright Office has long supported the

extension of the public performance right in sound

Continued

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For certain uses, including those by

satellite and internet radio, the digital

public performance right for sound

recordings is subject to statutory

licensing in accordance with Sections

112 and 114 of the Act. Section 112

provides for a license to reproduce the

phonorecords (sometimes referred to as

‘‘ephemeral recordings’’) necessary to

facilitate a service’s transmissions to

subscribers, while Section 114 licenses

the public performances of sound

recordings resulting from those

transmissions. This statutory licensing

framework applies only to

noninteractive (i.e., radio-style) services

as defined under Section 114;

interactive (or on-demand services) are

not covered. See 17 U.S.C. 112(e); 17

U.S.C. 114(d)(2), (f). For interactive

services, sound recording owners

negotiate licenses directly with users.

The rates and terms applicable to the

public performance of sound recordings

under the Section 112 and 114 licenses

are established by the CRB. See 17

U.S.C. 801 et seq. The royalties due

under these licenses are paid to an

entity designated by the CRB—currently

SoundExchange, Inc.—which collects,

processes, and distributes payments on

behalf of rights holders.

Notably, under Section 114, the rate

standard applicable to those satellite

radio and music subscription services

that existed as of July 31, 1998 (i.e.,

‘‘preexisting’’ services

) differs from

recordings to broadcast radio. See Internet

Streaming of Radio Broadcasts: Balancing the

Interests of Sound Recording Copyright Owners

With Those of Broadcasters: Hearing Before the

Subcomm. on Courts, the Internet, and Intellectual

Property of the H. Comm. on the Judiciary, 108th

Cong. 6–7 (2004) (statement of David Carson,

General Counsel, U.S. Copyright Office), available

at http://www.copyright.gov/docs/

carson071504.pdf. Only a handful of countries lack

such a right; in addition to the United States, the

list includes China, North Korea, and Iran. This gap

in copyright protection has the effect of depriving

American performers and labels of foreign royalties

to which they would otherwise be entitled, because

even countries that recognize a public performance

right in sound recordings impose a reciprocity

requirement. According to one estimate, U.S. rights

holders lose approximately $70 million each year

in royalties for performances in foreign broadcasts.

See generally Mary LaFrance, From Whether to

How: The Challenge of Implementing a Full Public

Performance Right in Sound Recordings, 2 Harv. J.

of Sports & Ent. L 221, 226 (2011).

The Act requires that receipts under the

Section 114 statutory license be divided in the

following manner: 50 percent to the owner of the

digital public performance right in the sound

recording, 2

⁄

percent to nonfeatured musicians,

⁄

percent to nonfeatured vocalists, and 45 percent

to the featured recording artists. 17 U.S.C. 114(g)(2).

17 U.S.C. 114(j)(10), (11). Today, Sirius/XM is

the only preexisting satellite service that seeks

statutory licenses under Section 114. See

Determination of Rates and Terms for Preexisting

Subscription Services and Satellite Digital Audio

Radio Services, 78 FR 23054, 23055 (Apr. 17, 2013).

There are two preexisting subscription services,

Music Choice and Muzak. Id.

that for other services such as internet

radio.

Royalty rates for pre-existing

satellite radio and subscription services

are governed by the four-factor standard

in Section 801(b) of the Act—that is, the

standard that applies to the Section 115

license for musical works.

By contrast,

under the terms of Section 114, rates

and terms for noninteractive public

performances via internet radio and

other newer digital music services are to

be determined by the CRB based on

what a ‘‘willing buyer’’ and ‘‘willing

seller’’ would have agreed to in the

marketplace.

Subjects of Inquiry

The Copyright Office seeks public

input on the effectiveness of the current

methods for licensing musical works

and sound recordings. Accordingly, the

Office invites written comments on the

specific subjects above. A party

choosing to respond to this Notice of

Inquiry need not address every subject,

but the Office requests that responding

parties clearly identify and separately

address each subject for which a

response is submitted.

Musical Works

1. Please assess the current need for

and effectiveness of the Section 115

statutory license for the reproduction

and distribution of musical works.

2. Please assess the effectiveness of

the royalty ratesetting process and

standards under Section 115.

3. Would the music marketplace

benefit if the Section 115 license were

updated to permit licensing of musical

works on a blanket basis by one or more

collective licensing entities, rather than

See 17 U.S.C. 114(f)(1), 801(b)(1).

17 U.S.C. 114(f)(2)(B) instructs the CRB to

‘‘establish rates and terms that most clearly

represent the rates and terms that would have been

negotiated in the marketplace between a willing

buyer and willing seller.’’ The provision further

requires the CRB to consider ‘‘whether use of the

service may substitute for or may promote the sales

of phonorecords or otherwise may interfere with or

may enhance the sound recording copyright

owner’s other streams of revenue from its sound

recordings,’’ and ‘‘the relative roles of the copyright

owner and the transmitting entity in the

copyrighted work and the service made available to

the public with respect to relative creative

contribution, technological contribution, capital

investment, cost, and risk.’’ Id.

For all types of services eligible for a Section 114

statutory license, the rates for the phonorecords

(ephemeral recordings) used to operate the service

are to be established by the CRB under Section 112

according to a ‘‘willing buyer/willing seller’’

standard. 17 U.S.C. 112(e). In general, the Section

112 rates have been a relatively insignificant part

of the CRB’s ratesetting proceedings, and have been

established as a subset of the 114 rate. See, e.g.,

Determination of Rates and Terms for Preexisting

Subscription Services and Satellite Digital Audio

Radio Services, 78 FR 23054, 23055–56 (Apr. 17,

2013).

on a song-by-song basis? If so, what

would be the key elements of any such

system?

4. For uses under the Section 115

statutory license that also require a

public performance license, could the

licensing process be facilitated by

enabling the licensing of performance

rights along with reproduction and

distribution rights in a unified manner?

How might such a unified process be

effectuated?

5. Please assess the effectiveness of

the current process for licensing the

public performances of musical works.

6. Please assess the effectiveness of

the royalty ratesetting process and

standards applicable under the consent

decrees governing ASCAP and BMI, as

well as the impact, if any, of 17 U.S.C.

114(i), which provides that ‘‘[l]icense

fees payable for the public performance

of sound recordings under Section

106(6) shall not be taken into account in

any administrative, judicial, or other

governmental proceeding to set or adjust

the royalties payable to copyright

owners of musical works for the public

performance of their works.’’

7. Are the consent decrees serving

their intended purpose? Are the

concerns that motivated the entry of

these decrees still present given modern

market conditions and legal

developments? Are there alternatives

that might be adopted?

Sound Recordings

8. Please assess the current need for

and effectiveness of the Section 112 and

Section 114 statutory licensing process.

9. Please assess the effectiveness of

the royalty ratesetting process and

standards applicable to the various

types of services subject to statutory

licensing under Section 114.

10. Do any recent developments

suggest that the music marketplace

might benefit by extending federal

recordings? Are there reasons to

continue to withhold such protection?

Should pre-1972 sound recordings be

included within the Section 112 and

114 statutory licenses?

11. Is the distinction between

interactive and noninteractive services

adequately defined for purposes of

eligibility for the Section 114 license?

Platform Parity

12. What is the impact of the varying

ratesetting standards applicable to the

Section 112, 114, and 115 statutory

licenses, including across different

music delivery platforms. Do these

differences make sense?

13. How do differences in the

applicability of the sound recording

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public performance right impact music

licensing?

Changes in Music Licensing Practices

14. How prevalent is direct licensing

by musical work owners in lieu of

licensing through a common agent or

PRO? How does direct licensing impact

the music marketplace, including the

major record labels and music

publishers, smaller entities, individual

creators, and licensees?

15. Could the government play a role

in encouraging the development of

alternative licensing models, such as

micro-licensing platforms? If so, how

and for what types of uses?

16. In general, what innovations have

been or are being developed by

process of music licensing more

effective?

17. Would the music marketplace

benefit from modifying the scope of the

existing statutory licenses?

Revenues and Investment

18. How have developments in the

music marketplace affected the income

of songwriters, composers, and

recording artists?

19. Are revenues attributable to the

performance and sale of music fairly

divided between creators and

distributors of musical works and sound

recordings?

20. In what ways are investment

decisions by creators, music publishers,

and record labels, including the

investment in the development of new

projects and talent, impacted by music

licensing issues?

21. How do licensing concerns impact

the ability to invest in new distribution

models?

Data Standards

22. Are there ways the federal

government could encourage the

adoption of universal standards for the

identification of musical works and

sound recordings to facilitate the music

licensing process?

Other Issues

23. Please supply or identify data or

economic studies that measure or

quantify the effect of technological or

other developments on the music

licensing marketplace, including the

revenues attributable to the

consumption of music in different

formats and through different

distribution channels, and the income

earned by copyright owners.

24. Please identify any pertinent

issues not referenced above that the

conducting its study.

Dated: March 11, 2014.

Jacqueline C. Charlesworth,

General Counsel and Associate, Register of

Copyrights.

[FR Doc. 2014–05711 Filed 3–14–14; 8:45 am]

BILLING CODE 1410–30–P

NATIONAL ARCHIVES AND RECORDS

ADMINISTRATION

[NARA–2014–020]

Records Schedules; Availability and

Request for Comments

AGENCY

: National Archives and Records

Administration (NARA).

ACTION

: Notice of availability of

proposed records schedules; request for

comments.

SUMMARY

: The National Archives and

Records Administration (NARA)

publishes notice at least once monthly

of certain Federal agency requests for

records disposition authority (records

schedules). Once approved by NARA,

records schedules provide mandatory

instructions on what happens to records

when no longer needed for current

Government business. They authorize

the preservation of records of

continuing value in the National

Archives of the United States and the

destruction, after a specified period, of

records lacking administrative, legal,

research, or other value. Notice is

published for records schedules in

which agencies propose to destroy

records not previously authorized for

disposal or reduce the retention period

of records already authorized for

disposal. NARA invites public

comments on such records schedules, as

required by 44 U.S.C. 3303a(a).

DATES

: Requests for copies must be

received in writing on or before April

16, 2014. Once the appraisal of the

records is completed, NARA will send

a copy of the schedule. NARA staff

usually prepares appraisal memoranda

that contain additional information

concerning the records covered by a

proposed schedule. These, too, may be

requested and will be provided once the

appraisal is completed. Requesters will

be given 30 days to submit comments on

the schedule.

ADDRESSES

: You may request a copy of

any records schedule identified in this

notice by contacting Records

Management Services (ACNR) using one

of the following means:

Mail: NARA (ACNR), 8601 Adelphi

Road, College Park, MD 20740–6001

Email: [email protected]

FAX: 301–837–3698

Requesters must cite the control

number, which appears in parentheses

after the name of the agency which

submitted the schedule, and must

provide a mailing address. Those who

desire appraisal reports should so

indicate in their request.

FOR FURTHER INFORMATION CONTACT

Margaret Hawkins, Director, Records

Management Services (ACNR), National

Archives and Records Administration,

8601 Adelphi Road, College Park, MD

20740–6001. Telephone: 301–837–1799.

Email: [email protected].

SUPPLEMENTARY INFORMATION

: Each year

Federal agencies create billions of

records on paper, film, magnetic tape,

and other media. To control this

accumulation, agency records managers

prepare schedules proposing retention

periods for records and submit these

schedules for NARA’s approval. These

schedules provide for the timely transfer

into the National Archives of

historically valuable records and

authorize the disposal of all other

records after the agency no longer needs

them to conduct its business. Some

schedules are comprehensive and cover

all the records of an agency or one of its

major subdivisions. Most schedules,

however, cover records of only one

office or program or a few series of

records. Many of these update

previously approved schedules, and

some include records proposed as

permanent.

The schedules listed in this notice are

media-neutral unless specified

otherwise. An item in a schedule is

media-neutral when the disposition

instructions may be applied to records

regardless of the medium in which the

records are created and maintained.

Items included in schedules submitted

to NARA on or after December 17, 2007,

are media-neutral unless the item is

specifically limited to a specific

medium. (See 36 CFR 1225.12(e).)

No Federal records are authorized for

destruction without the approval of the

Archivist of the United States. This

approval is granted only after a

thorough consideration of their

administrative use by the agency of

origin, the rights of the Government and

of private persons directly affected by

the Government’s activities, and

whether or not they have historical or

other value.

Besides identifying the Federal

agencies and any subdivisions

requesting disposition authority, this

public notice lists the organizational

unit(s) accumulating the records or

indicates agency-wide applicability in

the case of schedules that cover records

that may be accumulated throughout an

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imports) and (a)(2)(B)(II.B.) (shift in

production to a foreign country) have

not been met.

85,099, Harrington Tool Company,

Ludington, Michigan.

The workers’ firm does not produce

an article as required for certification

under Section 222 of the Trade Act of

1974.

85,046, AIG Claims, Houston, Texas.

85,097, SuperMedia Services, LLC.,

Middleton, Massachusetts.

85,122, Bimbo Bakaries USA, Inc.,

Wichita, Kansas.

85,144, IP & Science (Patent Payments),

Bingham Farms, Michigan.

85,145, AXA Equitable Life Insurance

Company, Charlotte, North Carolina.

Determinations Terminating

Investigations of Petitions for Worker

Adjustment Assistance

After notice of the petitions was

published in the Federal Register and

on the Department’s Web site, as

required by Section 221 of the Act (19

USC 2271), the Department initiated

investigations of these petitions.

None.

I hereby certify that the

aforementioned determinations were

issued during the period of March 31,

2014 through April 4, 2014. These

determinations are available on the

Department’s Web site tradeact/taa/taa_

search_form.cfm under the searchable

listing of determinations or by calling

the Office of Trade Adjustment

Assistance toll free at 888–365–6822.

Signed at Washington, DC this 10th day of

April 2014.

Del Min Amy Chen,

Certifying Officer, Office of Trade Adjustment

Assistance.

[FR Doc. 2014–10166 Filed 5–2–14; 8:45 am]

BILLING CODE 4510–FN–P

LIBRARY OF CONGRESS

U.S. Copyright Office

[Docket No. 2014–03]

Music Licensing Study

AGENCY

: U.S. Copyright Office, Library

of Congress.

ACTION

: Notice of public roundtables.

SUMMARY

: The U.S. Copyright Office is

undertaking a study to evaluate the

effectiveness of current methods for

licensing musical works and sound

recordings. The study will assess

whether and how existing methods

serve the music marketplace, including

new and emerging digital distribution

platforms. In addition to soliciting

written comments, the Office is

conducting three two-day public

roundtables on music licensing issues.

A Notice of Inquiry soliciting written

comments in response to a number of

subjects was issued on March 17, 2014,

and written comments are due on or

before May 16, 2014. See 78 FR 14739

(Mar. 17, 2014). At this time, the

roundtables to be held in June 2014 in

Nashville, Los Angeles, and New York.

DATES

: The two-day public roundtable

in Nashville will be held on June 4 and

5, 2014, on both days from 9:00 a.m. to

5:00 p.m. The two-day public

roundtable in Los Angeles will be held

on June 16 and 17, 2014, on both days

from 9:00 a.m. to 5:00 p.m. The two-day

public roundtable in New York will be

held on June 23 and 24, 2014, from 9:00

a.m. to 5:00 p.m. on June 23, and from

8:30 a.m. to 4:00 p.m. on June 24.

Requests to participate in the

roundtables must be received by the

ADDRESSES

: The Nashville roundtable

will take place at Belmont University’s

Mike Curb College of Entertainment and

Music Business, 34 Music Square East,

Nashville, Tennessee 37203. The Los

Angeles roundtable will take place at

the UCLA School of Law, 385 Charles E.

Young Drive East, Los Angeles,

California 90095. The New York

roundtable will take place at the New

York University School of Law, 40

Washington Square South, New York,

New York 10012. Requests to participate

in the roundtables should be submitted

using the form available on the Office’s

Web site at http://www.copyright.gov/

docs/musiclicensingstudy. If electronic

submission is not feasible, please

contact the Office at 202–707–8350 for

special instructions.

FOR FURTHER INFORMATION CONTACT

Jacqueline C. Charlesworth, General

Counsel and Associate Register of

Copyrights, by email at jcharlesworth@

loc.gov or by telephone at 202–707–

8350; or Sarang V. Damle, Special

Advisor to the General Counsel, by

email at [email protected] or by telephone

at 202–707–8350.

SUPPLEMENTARY INFORMATION

: Congress

is currently engaged in a comprehensive

review of the U.S. Copyright Act, 17

U.S.C. 101 et seq., to evaluate potential

revisions to the law in light of

technological and other developments

that impact the creation, dissemination,

and use of copyrighted works. In light

of Congress’s review and significant

changes to the music industry in recent

years, the U.S. Copyright Office is

conducting a study to assess the

effectiveness of current methods for

licensing sound recordings and musical

works. The Office published a Notice of

Inquiry on March 17, 2014, seeking

written comments on twenty-four

subjects concerning the current

environment in which music is

licensed. See 78 FR 14739 (Mar. 17,

2014).

At this time, the Copyright Office is

providing notice of its intention to seek

further input for its study through three

two-day public roundtables to be held

in Nashville, Los Angeles, and New

York. The public roundtables will offer

an opportunity for interested parties to

comment on pertinent music licensing

issues. The roundtables will address

topics set forth in the Notice of Inquiry,

including: The current music licensing

landscape; licensing of sound

recordings, including under the Section

112 and 114 statutory licenses and the

treatment of pre-1972 recordings;

licensing of musical works, including

under the Section 115 statutory license

and through the performing rights

organizations (‘‘PROs’’); fair royalty

rates and platform parity; industry data

standards; industry incentives and

investment; and potential future

developments in music licensing.

Following discussion of the various

agenda topics by roundtable

participants, observers at the

roundtables will be provided a limited

opportunity to offer additional

comments.

The roundtable hearing rooms will

have a limited number of seats for

participants and observers. Those who

seek to participate should complete and

submit the form available on the Office’s

Web site at http://www.copyright.gov/

docs/musiclicensingstudy so it is

received by the Office no later than May

20, 2014. For individuals who wish to

observe a roundtable, the Office will

provide public seating on a first-come,

first-serve basis on the days of the

roundtable.

Dated: April 30, 2014.

Jacqueline C. Charlesworth,

General Counsel and Associate Register of

Copyrights.

[FR Doc. 2014–10242 Filed 5–2–14; 8:45 am]

BILLING CODE 1410–30–P

NATIONAL ARCHIVES AND RECORDS

ADMINISTRATION

[NARA 2014–026]

Creation of Freedom of Information Act

Advisory Committee

AGENCY

: National Archives and Records

Administration.

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Federal Register / Vol. 79, No. 141 / Wednesday, July 23, 2014 / Notices

U.S.C. § 300j–9(i), 33 U.S.C. § 1367, 15

U.S.C. § 2622, 42 U.S.C. § 6971, 42

U.S.C. § 7622, 42 U.S.C. § 9610, 42

U.S.C. § 5851, 49 U.S.C. § 42121, 18

U.S.C. § 1514A, 49 U.S.C. § 60129, 49

U.S.C. § 20109, 6 U.S.C. § 1142, 15

U.S.C. § 2087, 29 U.S.C. § 218c, 12

U.S.C. § 5567, 46 U.S.C. § 2114, 21

U.S.C. § 399d, and 49 U.S.C. § 30171.

Signed at Washington, DC on July 18, 2014.

David Michaels,

Assistant Secretary of Labor for Occupational

Safety and Health.

[FR Doc. 2014–17342 Filed 7–22–14; 8:45 am]

BILLING CODE 4510–26–P

LIBRARY OF CONGRESS

[Docket No. 2014–03]

Music Licensing Study: Second

Request for Comments

AGENCY

: U.S. Copyright Office, Library

of Congress.

ACTION

: Notice of inquiry.

SUMMARY

: The U.S. Copyright Office has

undertaken a study to evaluate the

effectiveness of current methods for

licensing musical works and sound

recordings. At this time, the Office seeks

additional comments on whether and

how existing music licensing methods

serve the music marketplace, including

new and emerging digital distribution

platforms.

DATES

: Written comments are due on or

before August 22, 2014.

ADDRESSES

: All comments shall be

submitted electronically. A comment

page containing a comment form is

posted on the Office Web site at

http://www.copyright.gov/200B;docs/

200B;musiclicensingstudy. The Web site

interface requires commenting parties to

complete a form specifying their name

and organization, as applicable, and to

upload comments as an attachment via

a browser button. To meet accessibility

standards, commenting parties must

upload comments in a single file not to

exceed six megabytes (MB) in one of the

following formats: The Portable

Document File (PDF) format that

contains searchable, accessible text (not

an image); Microsoft Word;

WordPerfect; Rich Text Format (RTF); or

ASCII text file format (not a scanned

document). The form and face of the

comments must include both the name

of the submitter and organization. The

Office will post the comments publicly

on its Web site in the form that they are

received, along with associated names

and organizations. If electronic

submission of comments is not feasible,

please contact the Office at 202–707–

8350 for special instructions.

FOR FURTHER INFORMATION CONTACT

Jacqueline C. Charlesworth, General

Counsel and Associate Register of

Copyrights, by email at jcharlesworth@

loc.gov or by telephone at 202–707–

8350; or Sarang V. Damle, Special

Advisor to the General Counsel, by

email at [email protected] or by telephone

at 202–707–8350.

SUPPLEMENTARY INFORMATION

I. Background

The U.S. Copyright Office is

conducting a study to assess the

effectiveness of the current methods for

licensing musical works and sound

recordings. To aid with this study, the

Office published an initial Notice of

Inquiry on March 17, 2014 (‘‘First

Notice’’) seeking written comments on

twenty-four subjects concerning the

current environment in which music is

licensed. 78 FR 14739 (Mar. 17, 2014).

The eighty-five written submissions

received in response to this initial

notice can be found on the Copyright

Office Web site at http://

www.copyright.gov/docs/musiclicensing

study/200B;comments/Docket2014_3/.

In June 2014, the Office conducted three

two-day public roundtables in

Nashville, Los Angeles, and New York

City. The three roundtables provided

participants with the opportunity to

share their views on the topics

identified in the First Notice and other

issues relating to music licensing. See

79 FR 25626 (May 5, 2014). Transcripts

of the proceedings at each of the three

roundtables will be made available on

the Copyright Office Web site at

http://www.copyright.gov/docs/

200B;musiclicensingstudy/.

In the initial round of written

comments and during the roundtable

sessions, a number of significant issues

were discussed that the Office believes

merit additional consideration.

First, as explained in the First Notice,

in 2013, the two federal district courts

overseeing the antitrust consent decrees

governing the largest performance rights

organizations (‘‘PROs’’), American

Society of Composers, Authors and

Publishers (‘‘ASCAP’’) and Broadcast

Music, Inc. (‘‘BMI’’), held in separate

opinions that under those decrees,

music publishers could not withdraw

selected rights—such as ‘‘new media’’

rights—to be directly licensed outside of

the PROs; rather, a particular

publisher’s song catalog must either be

‘‘all in’’ or ‘‘all out.’’

Following these

In re Pandora Media, Inc., Nos. 12–cv–8035, 41–

cv–1395, 2013 WL 5211927 (S.D.N.Y. Sept. 17,

rulings, both in public statements and at

the recent roundtables, certain major

music publishers have indicated that, if

the consent decrees remain in place

without modification, they intend to

withdraw their entire catalogs from the

two PROs and directly license public

performances.

Such a move would

affect not only online services, but more

traditional areas of public performance

such as radio, television, restaurants,

and bars.

Stakeholders at the roundtables

expressed significant concerns regarding

the impact of major publishers’

complete withdrawal from the PROs.

Notably, traditional songwriter contracts

typically include provisions that assume

that a songwriter’s performance

royalties will be collected by and paid

directly to the songwriter through a

PRO, without contemplating alternative

arrangements. Songwriters and

composers raised questions as to how

withdrawing publishers would fulfill

this responsibility in the future,

including whether they would be in a

position to track and provide adequate

usage and payment data under a direct

licensing system. Another concern is

how such withdrawals would affect the

PROs’ cost structures and the

commission rates for smaller entities

and individual creators who continued

to rely upon these organizations to

license and administer their public

performance rights. At the same time,

some stakeholders questioned the

existing distribution methodologies of

the PROs, suggesting that the PROs

should rely more on census-based

reporting (as is typically supplied by

digital services) and less on sampling or

non-census-based approaches to allocate

royalty fees among members.

Next, many stakeholders appear to be

of the view that the Section 115

statutory license for the reproduction

and distribution of musical works

should either be eliminated or

significantly modified to reflect the

realities of the digital marketplace.

While music owners and music users

have expressed a range of views as to

the particulars of how this might be

accomplished, much of the commentary

and discussion has centered on two

2013); Broadcast Music, Inc., v. Pandora Media,

Inc., Nos. 12–cv–4037, 64–cv–3787, 2013 WL

6697788 (S.D.N.Y. Dec. 19, 2013).

See Ed Christman, Universal Music Publishing

Plots Exit From ASCAP, BMI, Billboard (Feb. 1,

2013), http://www.billboard.com/biz/articles/news/

publishing/1537554/universal-music-publishing-

plots-exit-from-ascap-bmi; see also Ed Christman,

Sony/ATV’s Martin Bandier Repeats Warning to

ASCAP, BMI, Billboard (July 11, 2014), http://

www.billboard.com/biz/articles/news/publishing/

6157469/sonyatvs-martin-bandier-repeats-warning-

to-ascap-bmi.

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possible approaches. The first would be

to sunset the Section 115 license with

the goal of enabling musical work

owners to negotiate licenses directly

with music users at unregulated,

marketplace rates (as the

synchronization market for musical

works currently operates). Some

stakeholders have acknowledged,

however, that such a market-based

system might still have to allow for the

possibility of collective licensing to

accommodate individuals and smaller

capacity or leverage to negotiate directly

with online service providers and

others.

A second model, advocated by the

record labels, would be to eliminate

Section 115 and instead allow music

publishers and sound recording owners

collectively to negotiate an

industrywide revenue-sharing

arrangement as between them. For the

uses falling under this approach, a fixed

percentage of licensing fees for use of a

recorded song would be allocated to the

musical work and the remainder would

go to the sound recording owner. Record

labels would be permitted to bundle

musical work licenses with their sound

recording licenses, with third-party

licensees to pay the overall license fees

to publishers and labels according to the

agreed industry percentages. While

musical work owners would retain

control over the first recordings of their

works, such an arrangement would

cover not only audio-only uses but

would extend to certain audiovisual

uses not currently covered by the

Section 115 license, such as music

videos and lyric display.

Another theme that emerged from the

first round of written comments and the

public roundtables relates to the Section

112 and 114 statutory licenses for the

digital performance of sound

recordings.

Although there appeared to

Based upon written comments and discussion at

the roundtables, it appears that certain language in

the First Notice concerning the lack of availability

of licenses for pre-1972 recordings under Sections

112 and 114 may have been misinterpreted by

some. In a footnote, the First Notice observed that

‘‘a person wishing to digitally perform a pre-1972

sound recording cannot rely on the Section 112 and

114 statutory licenses and must instead obtain a

license directly from the owner of the sound

recording copyright.’’ 78 FR 14739, 14741 n.12. In

making this statement, the Office was not opining

on the necessity of obtaining such a license under

state law, but merely observing that licenses for the

digital performance of pre-1972 sound recordings,

and for the reproductions to enable such

performances, are not available under Section 112

or 114. A licensee seeking such a license would

thus need to obtain it directly from the sound

recording owner (as the Office understands to be

the current practice of some licensees with respect

to performances of pre-1972 recordings).

be substantial agreement that these

licenses are largely effective, there was

also a general consensus that

improvements could be made to the

statutorily mandated ratesetting

procedures. For instance, under 17

U.S.C. 803(b)(6), parties in proceedings

before the CRJs must submit written

direct statements before any discovery is

conducted. A number of commenters

believed that the ratesetting process

could be significantly streamlined by

allowing for discovery before

presentation of the parties’ direct cases,

as in ordinary civil litigation.

Stakeholders were also of the view that

it would be more efficient to combine

what are now two separate direct and

rebuttal phases of ratesetting hearings,

as contemplated by 17 U.S.C.

803(b)(6)(C), into a single integrated

trial—again as is more typical of civil

litigation. There was also general

agreement that more could be done to

encourage settlement of rate disputes,

such as adoption of settlements earlier

in the process and allowing such

settlements to be treated as non-

precedential with respect to non-settling

participants.

Finally, many commenting parties

pointed to the lack of standardized and

reliable data related to the identity and

ownership of musical works and sound

recordings as a significant obstacle to

more efficient music licensing

mechanisms. Stakeholders observed that

digital music files are often distributed

to online providers without identifiers

such as the International Standard

Recording Code (‘‘ISRC’’) and/or

International Standard Musical Work

Code (‘‘ISWC’’), and that the lack of

these identifiers (or other unique or

universal identifiers) makes it difficult

for licensees or others to link particular

music files with the copyrighted works

they embody. In addition to problems

identifying the musical works and

sound recordings themselves,

commenters noted the difficulties of

ascertaining ownership information,

On the other side of the coin, it appears that

others have misread the Office’s observation in its

report on pre-1972 sound recordings that ‘‘[i]n

general, state law does not appear to recognize a

performance right in sound recordings’’ as an

official statement that no such protection is (or

should be) available under state law. See U.S.

Pre-1972 Sound Recordings 44 (2011). This, too, is

a misinterpretation. While, as a factual matter, a

state may not have affirmatively acknowledged a

public performance right in pre-1972 recordings as

of the Office’s 2011 report, the language in the

report should not be read to suggest that a state

could not properly interpret its law to recognize

such a right. As the Office explained, ‘‘common law

protection is amorphous, and courts often perceive

themselves to have broad discretion.’’ Id. at 48.

especially in the case of musical works,

which frequently have multiple owners

representing varying percentages of

particular songs. These issues, in turn,

relate to a more general ‘‘transparency’’

concern of music creators that usage and

payment information—including

information about advances and equity

provided by licensees to publishers and

labels—may not be fully and readily

accessible to songwriters, composers

and artists.

At this time, the Office is soliciting

additional comments on these subjects,

as set forth in the specific questions

below. Parties may also take this

opportunity to respond to the positions

taken by others in the first round of

comments and/or at the roundtables.

Those who plan to submit additional

comments should be aware that the

Office has studied and will take into

consideration the comments already

received, so there is no need to restate

previously submitted material. While a

party choosing to respond to this Notice

of Inquiry need not address every

subject below, the Office requests that

responding parties clearly identify and

separately address each subject for

which a response is submitted.

Subjects of Inquiry

Data and Transparency

1. Please address possible methods for

ensuring the development and

dissemination of comprehensive and

authoritative public data related to the

identity and ownership of musical

works and sound recordings, including

how best to incentivize private actors to

gather, assimilate and share reliable

data.

2. What are the most widely embraced

identifiers used in connection with

musical works, sound recordings,

songwriters, composers, and artists?

How and by whom are they issued and

managed? How might the government

incentivize more universal availability

and adoption?

3. Please address possible methods for

enhancing transparency in the reporting

of usage, payment, and distribution data

by licensees, record labels, music

publishers, and collective licensing

entities, including disclosure of non-

usage-based forms of compensation

(e.g., advances against future royalty

payments and equity shares).

Musical Works

4. Please provide your views on the

logistics and consequences of potential

publisher withdrawals from ASCAP

and/or BMI, including how such

withdrawals would be governed by the

PROs; whether such withdrawals are

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compatible with existing publisher

agreements with songwriters and

composers; whether the PROs might

still play a role in administering

licenses issued directly by the

publishers, and if so, how; the effect of

any such withdrawals on PRO cost

structures and commissions; licensees’

access to definitive data concerning

individual works subject to withdrawal;

and related issues.

5. Are there ways in which the

current PRO distribution methodologies

could or should be improved?

6. In recent years, PROs have

announced record-high revenues and

distributions. At the same time, many

songwriters report significant declines

in income. What marketplace

developments have led to this result,

and what implications does it have for

the music licensing system?

7. If the Section 115 license were to

be eliminated, how would the transition

work? In the absence of a statutory

regime, how would digital service

providers obtain licenses for the

millions of songs they seem to believe

are required to meet consumer

expectations? What percentage of these

works could be directly licensed

without undue transaction costs and

would some type of collective licensing

remain necessary to facilitate licensing

of the remainder? If so, would such

collective(s) require government

oversight? How might uses now outside

of Section 115, such as music videos

and lyric displays, be accommodated?

Sound Recordings

8. Are there ways in which Section

112 and 114 (or other) CRB ratesetting

proceedings could be streamlined or

otherwise improved from a procedural

standpoint?

International Music Licensing Models

9. International licensing models for

the reproduction, distribution, and

public performance of musical works

differ from the current regimes for

licensing musical works in the United

States. Are there international music

licensing models the Office should look

to as it continues to review the U.S.

system?

Other Issues

10. Please identify any other pertinent

issues that the Copyright Office may

wish to consider in evaluating the music

licensing landscape.

Dated: July 18, 2014.

Jacqueline C. Charlesworth,

General Counsel and Associate, Register of

Copyrights.

[FR Doc. 2014–17354 Filed 7–22–14; 8:45 am]

BILLING CODE 1410–30–P

NATIONAL ARCHIVES AND RECORDS

ADMINISTRATION

[NARA–2014–044]

Records Schedules; Availability and

Request for Comments

AGENCY

: National Archives and Records

Administration (NARA).

ACTION

: Notice of availability of

proposed records schedules; request for

comments.

SUMMARY

: The National Archives and

Records Administration (NARA)

publishes notice at least once monthly

of certain Federal agency requests for

records disposition authority (records

schedules). Once approved by NARA,

records schedules provide mandatory

instructions on what happens to records

when no longer needed for current

Government business. They authorize

the preservation of records of

continuing value in the National

Archives of the United States and the

destruction, after a specified period, of

records lacking administrative, legal,

research, or other value. Notice is

published for records schedules in

which agencies propose to destroy

records not previously authorized for

disposal or reduce the retention period

of records already authorized for

disposal. NARA invites public

comments on such records schedules, as

required by 44 U.S.C. 3303a(a).

DATES

: Requests for copies must be

received in writing on or before August

22, 2014. Once the appraisal of the

records is completed, NARA will send

a copy of the schedule. NARA staff

usually prepare appraisal

memorandums that contain additional

information concerning the records

covered by a proposed schedule. These,

too, may be requested and will be

provided once the appraisal is

completed. Requesters will be given 30

days to submit comments.

ADDRESSES

: You may request a copy of

any records schedule identified in this

notice by contacting Records

Management Services (ACNR) using one

of the following means:

Mail: NARA (ACNR), 8601 Adelphi

Road, College Park, MD 20740–6001.

Email: [email protected].

Fax: 301–837–3698.

Requesters must cite the control

number, which appears in parentheses

after the name of the agency which

submitted the schedule, and must

provide a mailing address. Those who

desire appraisal reports should so

indicate in their request.

FOR FURTHER INFORMATION CONTACT

Margaret Hawkins, Director, Records

Management Services (ACNR), National

Archives and Records Administration,

8601 Adelphi Road, College Park, MD

20740–6001. Telephone: 301–837–1799.

Email: [email protected].

SUPPLEMENTARY INFORMATION

: Each year

Federal agencies create billions of

records on paper, film, magnetic tape,

and other media. To control this

accumulation, agency records managers

prepare schedules proposing retention

periods for records and submit these

schedules for NARA’s approval. These

schedules provide for the timely transfer

into the National Archives of

historically valuable records and

authorize the disposal of all other

records after the agency no longer needs

them to conduct its business. Some

schedules are comprehensive and cover

all the records of an agency or one of its

major subdivisions. Most schedules,

however, cover records of only one

office or program or a few series of

records. Many of these update

previously approved schedules, and

some include records proposed as

permanent.

The schedules listed in this notice are

media neutral unless specified

otherwise. An item in a schedule is

media neutral when the disposition

instructions may be applied to records

regardless of the medium in which the

records are created and maintained.

Items included in schedules submitted

to NARA on or after December 17, 2007,

are media neutral unless the item is

limited to a specific medium. (See 36

CFR 1225.12(e).)

No Federal records are authorized for

destruction without the approval of the

Archivist of the United States. This

approval is granted only after a

thorough consideration of their

administrative use by the agency of

origin, the rights of the Government and

of private persons directly affected by

the Government’s activities, and

whether or not they have historical or

other value.

Besides identifying the Federal

agencies and any subdivisions

requesting disposition authority, this

public notice lists the organizational

unit(s) accumulating the records or

indicates agency-wide applicability in

the case of schedules that cover records

that may be accumulated throughout an

agency. This notice provides the control

number assigned to each schedule, the

total number of schedule items, and the

number of temporary items (the records

proposed for destruction). It also

includes a brief description of the

temporary records. The records

schedule itself contains a full

description of the records at the file unit

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Federal Register / Vol. 79, No. 148 / Friday, August 1, 2014 / Notices

Total Responses: 1,643.

Average Time per Response: 60

minutes.

Estimated Total Burden Hours: 1,643

hours.

Total Other Burden Cost: $0.

Comments submitted in response to

this request will be summarized and/or

included in the request for Office of

Management and Budget approval; they

will also become a matter of public

record.

James H. Moore, Jr.,

Deputy Assistant Secretary for Policy, U.S.

Department of Labor.

[FR Doc. 2014–18184 Filed 7–31–14; 8:45 am]

BILLING CODE 4510–23–P

LIBRARY OF CONGRESS

[Docket No. 2014–03]

Music Licensing Study

AGENCY

: U.S. Copyright Office, Library

of Congress.

ACTION

: Notice of extension of comment

period.

SUMMARY

: The United States Copyright

Office is extending the deadline for

public comments regarding the

effectiveness of existing methods of

licensing music that were solicited in a

July 23, 2014 Notice of Inquiry. See 79

FR 42833 (July 23, 2014).

DATES

: Written comments are now due

on or before September 12, 2014.

ADDRESSES

: All comments shall be

submitted electronically. A comment

page containing a comment form is

posted on the Office Web site at

http://www.copyright.gov/docs/

musiclicensingstudy. The Web site

interface requires commenting parties to

complete a form specifying their name

and organization, as applicable, and to

upload comments as an attachment via

a browser button. To meet accessibility

standards, commenting parties must

upload comments in a single file not to

exceed six megabytes (MB) in one of the

following formats: The Portable

Document File (PDF) format that

contains searchable, accessible text (not

an image); Microsoft Word;

WordPerfect; Rich Text Format (RTF); or

ASCII text file format (not a scanned

document). The form and face of the

comments must include both the name

of the submitter and organization. The

Office will post the comments publicly

on the Office’s Web site in the form that

they are received, along with associated

names and organizations. If electronic

submission of comments is not feasible,

please contact the Office at 202–707–

8350 for special instructions.

FOR FURTHER INFORMATION CONTACT

Jacqueline C. Charlesworth, General

Counsel and Associate Register of

Copyrights, by email at jcharlesworth@

loc.gov or by telephone at 202–707–

8350; or Sarang V. Damle, Special

Advisor to the General Counsel, by

email at [email protected] or by telephone

at 202–707–8350.

SUPPLEMENTARY INFORMATION

I. Background

The U.S. Copyright Office is

conducting a study to assess the

effectiveness of current methods for

licensing sound recordings and musical

works. The Office received written

comments responding to an initial

Notice of Inquiry, and held three public

roundtables in Nashville, Los Angeles

and New York. See 78 FR 13739 (Mar.

17, 2014); 79 FR 25626 (May 5, 2014).

On July 23, 2014, the Office published

a second Notice of Inquiry, seeking

additional written comments on ten

subjects concerning the music licensing

environment. 79 FR 42833. To ensure

commenters have sufficient time to

address the topics set forth in the July

2014 Notice of Inquiry, the Office is

extending the time for filing written

comments from August 22, 2014 to

September 12, 2014.

Dated: July 28, 2014.

Maria A. Pallante,

[FR Doc. 2014–18096 Filed 7–31–14; 8:45 am]

BILLING CODE 1410–30–P

LIBRARY OF CONGRESS

U.S. Copyright Office

[Docket No. 2014–02]

Extension of Comment Period; Study

on the Right of Making Available;

Request for Additional Comments

AGENCY

: U.S. Copyright Office, Library

of Congress.

ACTION

: Extension of comment period.

SUMMARY

: The U.S. Copyright Office is

extending the deadline for public

comments that address topics listed in

the Office’s July 15, 2014 Request for

Additional Comments.

DATES

: Comments are now due no later

than 5:00 p.m. EDT on September 15,

2014.

ADDRESSES

: All comments should be

submitted electronically. To submit

comments, please visit http://

www.copyright.gov/docs/making_

available/. The Web site interface

requires submitters to complete a form

specifying name and organization, as

applicable, and to upload comments as

an attachment via a browser button. To

meet accessibility standards,

commenting parties must upload

comments in a single file not to exceed

six megabytes (‘‘MB’’) in one of the

following formats: a Portable Document

File (‘‘PDF’’) format that contains

searchable, accessible text (not an

image); Microsoft Word; WordPerfect;

Rich Text Format (‘‘RTF’’); or ASCII text

file format (not a scanned document).

The form and face of the comments

must include both the name of the

submitter and organization. The Office

will post all comments publicly on the

Office’s Web site exactly as they are

received, along with names and

organizations. If electronic submission

of comments is not feasible, please

contact the Office at 202–707–1027 for

special instructions.

FOR FURTHER INFORMATION CONTACT

Maria Strong, Senior Counsel for Policy

and International Affairs, by telephone

at 202–707–1027 or by email at

[email protected], or Kevin Amer,

Counsel for Policy and International

Affairs, by telephone at 202–707–1027

or by email at [email protected].

SUPPLEMENTARY INFORMATION

: On July

15, 2014, the Copyright Office issued a

Request for Additional Comments on

the state of U.S. law recognizing and

protecting ‘‘making available’’ and

‘‘communication to the public’’ rights

for copyright holders.

The Request

listed several questions for interested

members of the public to address in the

context of U.S. implementation of the

WIPO Copyright Treaty (WCT) and the

WIPO Performances and Phonograms

Treaty (WPPT) rights of ‘‘making

available’’ and ‘‘communication to the

public,’’ and also invited views on

specific issues raised during the public

roundtable held in Washington, DC on

May 5, 2014. To provide sufficient time

for commenters to respond, the Office is

extending the time for filing additional

comments from August 14, 2014 to

September 15, 2014.

Dated: July 28, 2014.

Karyn A. Temple Claggett,

Associate Register of Copyrights.

[FR Doc. 2014–18097 Filed 7–31–14; 8:45 am]

BILLING CODE 1410–30–P

Study on the Right of Making Available; Request

for Additional Comments, 79 FR 41309 (July 15,

2014).

c o p y r i g h t a n d t h e m u s i c m a r k e t p l a c e

appendix b commenting parties and

roundtable participants

. s . c o p y r i g h t o f f i c e

U.S. Copyright Office Copyright and the Music Marketplace

Parties Who Responded to First Notice of Inquiry

1. ABKCO Music & Records, Inc. (ABKCO)

2. American Association of Independent Music (A2IM)

3. American Society of Composers, Authors and Publishers (ASCAP)

4. Audiosocket

5. Barnett III, William

6. Brigham Young University Copyright Licensing Office

7. Broadcast Music, Inc. (BMI)

8. Camp, Ben

9. Center for Copyright Integrity

10. Castle, Christian L.

11. Cate, John

12. Consumer Federation of America (CFA) and Public Knowledge

13. Content Creators Coalition

14. Continental Entertainment Group

15. Copyright Alliance

16. Council of Music Creators

17. CTIA – The Wireless Association (CTIA)

18. Digital Data Exchange, LLC (DDEX)

19. Digital Media Association (DiMA)

20. DotMusic

21. Educational Media Foundation (EMF)

22. Ferrick, Melissa

23. Future of Music Coalition (FMC)

U.S. Copyright Office Copyright and the Music Marketplace

24. Gear Publishing Company and Lisa Thomas Music Services, LLC

25. Geo Music Group & George Johnson Music Publishing

26. Global Image Works

27. Greco, Melanie Holland

28. Harris, Jim

29. Hayes, Bonnie

30. Henderson, Linda S.

31. Herstand, Ari

32. Indiana University, Archives of African American Music and Culture

33. Interested Parties Advancing Copyright (IPAC)

34. Jessop, Paul

35. Kohn, Bob

36. LaPolt, Dina

37. Library of Congress

38. Lincoff, Bennett

39. Lowery, David

40. McAuliffe Esq., Emmett

41. Menell, Peter S.

42. Mitchell, John T.

43. Modern Works Music Publishing

44. Music Choice

45. Music Library Association

46. Music Reports, Inc. (MRI)

47. National Academy of Recording Arts & Sciences (NARAS)

U.S. Copyright Office Copyright and the Music Marketplace

48. National Association of Broadcasters (NAB)

49. National Music Publishers' Association (NMPA) and Harry Fox Agency, Inc.

(HFA)

50. National Public Radio, Inc. (NPR)

51. National Religious Broadcasters Music License Committee (NRBMLC)

52. National Religious Broadcasters Noncommercial Music License Committee

(NRBNMLC)

53. National Restaurant Association

54. Nauman, Vickie

55. Newman Esq., Deborah

56. Netflix, Inc.

57. Novak, Adam

58. Pagnani, Aidan

59. Pala Rez Radio

60. Pattison, Pat

61. Public Knowledge and Consumer Federation of America (CFA)

62. Public Television Coalition (PTC)

63. Radio Music License Committee, Inc. (RMLC)

64. Recording Industry Association of America, Inc. (RIAA)

65. Robin Green, Lynne

66. Rys, Jason

67. Schlieman, Derek S.

68. Screen Actors Guild – American Federation of Television and Radio Artists

(SAG-AFTRA) and American Federation of Musicians of the United States and

Canada (AFM)

69. SESAC, Inc. (SESAC)

U.S. Copyright Office Copyright and the Music Marketplace

70. Shocked, Michelle

71. Simpson, Jerrod

72. Sirius XM Radio Inc.

73. Society of Composers & Lyricists (SCL)

74. Songwriters Guild of America, Inc. (SGA)

75. SoundExchange, Inc.

76. Spotify USA Inc.

77. SRN Broadcasting

78. St. James, Charles

79. Television Music License Committee, LLC (TMLC)

80. Traugh, David

81. United States Marine Band

82. Willey, Robert

83. Wixen Music Publishing, Inc.

84. Yates, James M.

U.S. Copyright Office Copyright and the Music Marketplace

Participants in Nashville Hearings

1. Barker, John (ClearBox Rights and IPAC)

2. Buresh, Heather (Music Row Administrators Group)

3. Chertkof, Susan (RIAA)

4. Coleman, Dan (Modern Music Works Publishing)

5. Driskill, Marc (Sea Gayle Music and AIMP, Nashville Chapter)

6. Earls, Kent (UMPG)

7. Gervais, Daniel (Vanderbilt University Law School)

8. Gottlieb, Tony (Get Songs Direct, LLC)

9. Herbison, Barton (NSAI)

10. Johnson, George (Geo Music Group and George Johnson Music Publishing)

11. Kass, Fritz (Intercollegiate Broadcasting System, Inc.)

12. Kimes, Royal Wade (Wonderment Records)

13. Knife, Lee (DiMA)

14. Marks, Steven (RIAA)

15. McIntosh, Bruce (Codigo Music and Fania Records)

16. Meitus, Robert (Meitus Gelbert Rose LLP)

17. Mosenkis, Sam (ASCAP)

18. Oxenford, David (Wilkinson Barker Knauer LLP)

19. Schaffer, Brittany (NMPA and Loeb & Loeb LLP)

20. Sellwood, Scott (Google and YouTube)

21. Soled, Janice (My Music Screen)

22. Stollman, Marc (Stollman Law, PA)

23. Turley-Trejo, Ty (Brigham Young University Copyright Licensing Office)

24. Waltz, Reid Alan (SESAC)

U.S. Copyright Office Copyright and the Music Marketplace

Participants in Los Angeles Hearings

1. Anthony, Paul (Rumblefish)

2. Arrow, Ed (UMPG)

3. Barker, John (ClearBox Rights and IPAC)

4. Bernstein, Keith (Crunch Digital)

5. Blake, Lawrence J. (Concord Music Group, Inc.)

6. Bull, Eric D. (Create Law)

7. Cate, John (American Music Partners)

8. Cohan, Timothy A. (PeerMusic)

9. Goldberg, Ilene (IMG Consulting)

10. Greaves, Deborah (Label Law, Inc.)

11. Greenstein, Gary R. (Wilson Sonsini Goodrich & Rosati)

12. Harbeson, Eric (Music Library Association)

13. Hauth, Russell (Salem Communications and NRBMLC)

14. Irwin, Ashley (SCL)

15. Kokakis, David (UMPG)

16. Kossowicz, Tegan (UMG)

17. LaPolt, Dina (Dina LaPolt P.C.)

18. Lemone, Shawn (ASCAP)

19. Lipsztein, Leonardo (Google and YouTube)

20. Lord, Dennis (SESAC)

21. Marks, Steven (RIAA)

22. Menell, Peter (UC Berkeley School of Law)

23. Miller, Jennifer (Audiosocket)

24. Muddiman, Hélène (Hollywood Elite Composers)

U.S. Copyright Office Copyright and the Music Marketplace

25. Nauman, Vickie (CrossBorderWorks)

26. Prendergast, Brad (SoundExchange, Inc.)

27. Rudolph, John (Music Analytics)

28. Rys, Jason (Wixen Music Publishing, Inc.)

29. Sanders, Charles J. (SGA)

30. Schyman, Garry (SCL)

31. Watkins, Les (MRI)

U.S. Copyright Office Copyright and the Music Marketplace

Participants in New York Hearings

1. Albert, Eric (Stingray Digital Group)

2. Badavas, Christos P. (HFA)

3. Barker, John (ClearBox Rights and IPAC)

4. Barron, Gregg (BMG Rights Management)

5. Bengloff, Richard (A2IM)

6. Bennett, Jeffrey (SAG-AFTRA)

7. Besek, June (Columbia Law School, Kernochan Center for Law, Media and the

Arts)

8. Carapella, Cathy (Global Image Works)

9. Carnes, Rick (SGA)

10. Coleman, Alisa (ABKCO)

11. Conyers III, Joe (Downtown Music Publishing)

12. DeFilippis, Matthew (ASCAP)

13. Diab, Waleed (Google and YouTube)

14. Donnelley, Patrick (Sirius XM Radio Inc.)

15. Duffett-Smith, James (Spotify USA Inc.)

16. Dupler, Todd (NARAS)

17. Fakler, Paul (NAB and Music Choice)

18. Finkelstein, Andrea (SME.)

19. Gibbs, Melvin (Content Creators Coalition)

20. Greer, Cynthia (Sirius XM Radio Inc.)

21. Griffin, Jodie (Public Knowledge)

22. Hoyt, Willard (TMLC)

23. Huey, Dick (Toolshed Inc.)

U.S. Copyright Office Copyright and the Music Marketplace

24. Kass, Fritz (Intercollegiate Broadcasting System, Inc.)

25. Knife, Lee (DiMA)

26. Kohn, Bob (Kohn on Music Licensing)

27. Lee, Bill (SESAC)

28. Lummel, Lynn (ASCAP)

29. Mahoney, Jim (A2IM)

30. Malone, William (Intercollegiate Broadcasting System, Inc.)

31. Marin, Aldo (Cutting Records, Inc.)

32. Marks, Steven (RIAA)

33. Merrill, Tommy (The Press House and #IRespectMusic)

34. Morgan, Blake (ECR Music Group and #IRespectMusic)

35. Potts, Cheryl (Crystal Clear Music & CleerKut)

36. Rae, Casey (FMC)

37. Raff, Andrew (Shutterstock, Inc.)

38. Raffel, Colin (Prometheus Radio Project)

39. Reimer, Richard (ASCAP)

40. Resnick, Perry (RZO, LLC)

41. Rich, Bruce (RMLC)

42. Rinkerman, Gary (Drinker, Biddle & Reath LLP)

43. Rosen, Stuart (BMI)

44. Rosenthal, Jay (NMPA)

45. Rushing, Colin (SoundExchange, Inc.)

46. Steinberg, Michael G. (BMI)

47. Wood, Doug (National Council of Music Creator Organizations)

U.S. Copyright Office Copyright and the Music Marketplace

Parties Who Responded to Second Notice of Inquiry

1. ABKCO Music & Records, Inc. (ABKCO)

2. American Association of Independent Music (A2IM)

3. American Society of Composers, Authors and Publishers (ASCAP)

4. Bean, David

5. Broadcast Music, Inc. (BMI)

6. Buckley, William Jr.

7. Carapetyan, Gregory

8. Castle, Christian L.

9. Columbia Law School, Kernochan Center for Law, Media and the Arts

10. Computer & Communications Industry Association (CCIA)

11. Concord Music Group, Inc.

12. Content Creators Coalition

13. Deutsch, L. Peter

14. Digital Media Association (DiMA)

15. Future of Music Coalition (FMC)

16. Geo Music Group & George Johnson Music Publishing

17. Guyon, Cindy

18. Guyon, Rich

19. Interested Parties Advancing Copyright (IPAC)

20. LaPolt, Dina

21. Modern Works Music Publishing

22. Music Choice

23. Music Managers’ Forum (MMF) and Featured Artists' Coalition (FAC)

24. Music Reports, Inc. (MRI)

U.S. Copyright Office Copyright and the Music Marketplace

25. Nashville Songwriters Association International (NSAI)

26. National Academy of Recording Arts & Sciences (NARAS)

27. National Association of Broadcasters (NAB)

28. National Music Publishers' Association (NMPA) and Harry Fox Agency, Inc.

(HFA)

29. National Public Radio, Inc. (NPR)

30. Office of the County Attorney, Montgomery County, Maryland

31. Pangasa, Maneesh

32. Parker, Brad

33. Pilot Music Business Services, LLC

34. Pipeline Project 2014, Belmont University's Mike Curb College of Music Business

and Entertainment

35. Production Music Association (PMA)

36. Public Knowledge

37. Radio Music License Committee, Inc. (RMLC)

38. Recording Industry Association of America, Inc. (RIAA)

39. Resnick, Perry (RZO, LLC)

40. Righeimer, Carolyn

41. Rinkerman, Gary (Drinker, Biddle & Reath LLP)

42. Samuels, Jon M.

43. Screen Actors Guild – American Federation of Television and Radio Artists

(SAG-AFTRA) and American Federation of Musicians of the United States and

Canada (AFM)

44. Sirius XM Radio Inc.

45. Songwriters Guild of America, Inc. (SGA)

46. SoundExchange, Inc.

47. Stone, Bob

U.S. Copyright Office Copyright and the Music Marketplace

48. Szajner, Robert

49. Television Music License Committee, LLC (TMLC)

50. U.S. Chamber of Commerce, Global Intellectual Property Center (GIPC)

51. Wager, Gregg

c o p y r i g h t a n d t h e m u s i c m a r k e t p l a c e

appendix c abbreviations 

. s . c o p y r i g h t o f f i c e

U.S. Copyright Office Copyright and the Music Marketplace

ABBREVIATIONS

A2IM American Association of Independent Musicians

ABKCO ABKCO Music & Records, Inc.

AFM American Federation of Musicians of the United States and Canada

AHRA Audio Home Recording Act

AIMP Association of Independent Music Publishers

ASCAP American Society of Composers, Authors and Publishers

BMI Broadcast Music, Inc.

BYU Brigham Young University Copyright Licensing Office

CARP Copyright Arbitration Royalty Panel

CCIA Computer & Communications Industry Association

CFA Consumer Federation of America

CISAC International Confederation of Societies of Authors and Composers

CRB Copyright Royalty Board

CRT Copyright Royalty Tribunal

CTIA CTIA—The Wireless Association

DDEX Digital Data Exchange, LLC

DiMA Digital Media Association

DMCA Digital Millenium Copyright Act

DOJ United States Department of Justice

DPD Digital phonorecord delivery

DPRSRA Digital Performance Right in Sound Recordings Act

EMF Educational Media Foundation

EMI EMI Music Publishing Ltd.

FAC Featured Artists’ Coalition

FMC Future of Music Coalition

FTC United States Federal Trade Commission

U.S. Copyright Office Copyright and the Music Marketplace

GMR Global Music Rights

GMRO General music rights organization

GIPC U.S. Chamber of Commerce, Global Intellectual Property Center

GRD Global Repertoire Database

HFA Harry Fox Agency, Inc.

IFPI International Federation of the Phonographic Industry

IMR International Music Registry

ISNI International Standard Name Identifier

IPAC Interested Parties Advancing Copyright

IPI Interested Parties Information

ISO International Organization for Standardization

ISRC International Standard Recording Code

ISWC International Standard Musical Work Code

MMF Music Managers’ Forum

MRI Music Reports, Inc.

MRO Music rights organization

Music Biz Music Business Association

NAB National Association of Broadcasters

NARAS National Academy of Recording Arts & Sciences

NCTA National Cable & Telecommunications Association

NDMA New digital media agreement

NMPA National Music Publishers’ Association

NOI Notice of Intent

NPR National Public Radio, Inc.

NRBMLC National Religious Broadcasters Music License Committee

NRBNMLC National Religious Broadcasters Noncommercial Music License

Committee

U.S. Copyright Office Copyright and the Music Marketplace

NSAI Nashville Songwriters Association International

NTIA National Telecommunications and Information Administration

PPL Phonographic Performance Ltd.

PRO Performing rights organization

PTC Public Television Coalition

RESPECT Act Respecting Senior Performers as Essential Cultural Treasures Act

RMLC Radio Music License Committee, Inc.

RIAA Recording Industry Association of America, Inc.

SAG-AFTRA Screen Actors Guild-American Federation of Television and Radio Artists

SCL Society of Composers & Lyricists

SEA Songwriters Equity Act

SGA Songwriters Guild of America, Inc.

SIRA Section 115 Reform Act of 2006

SME Sony Music Entertainment, Inc.

Sony/ATV Sony/ATV Music Publishing LLC

SOCAN Society of Composers, Authors and Music Publishers of Canada

TMLC Television Music License Committee, LLC

UMG Universal Music Group

UMPG Universal Music Publishing Group

UPC Universal Product Code

USPTO U.S. Patent and Trademark Office

WIPO World Intellectual Property Organization

WMG Warner Music Group

c o p y r i g h t a n d t h e m u s i c m a r k e t p l a c e

appendix d licensing and ratesetting charts 

. s . c o p y r i g h t o f f i c e

Sound recordings

record labels/artists

Reproduction and distribution

(mechanical) rights

Synch

rights,

etc.

Musical Work

Synch

rights,

etc.

Public

performance

rights for

digital

noninteractive

Publishers

directly or

through

labels

Statutory

notice

Existing Licensing Framework

Public

performance

rights for

terrestrial

(AM/FM)

radio

No federal

performance

right

Labels

directly

Musical works

publishers/songwriters

Reproduction and

distribution rights,

and public

performance

rights for digital

interactive

Labels

directly

Public performance rights

Publishers

directly

Live

Traditional media

Downloads,

(TV, film, etc.)

(radio, TV, etc.)

interactive streaming,

and new media

CDs, etc.

(internet, etc.)

Traditional

media

(TV, film, etc.)

and new media

(internet, etc.)

Downloads,

Internet and

interactive

satellite

streaming,

radio, etc.

CDs, etc.

Publishers

directly

Reproduction and distribution

(mechanical) and

public performance rights

Mechanical and

public performance

rights subject

to withdrawal

Synch

rights,

etc.

Public

performance

rights for digital

noninteractive

and terrestrial

Downloads

and interactive

streaming

Downloads,

interactive streaming,

CDs, etc.

Traditional media

(radio, TV, etc.)

and new media

(internet, etc.)

Traditional media

(TV, film, etc.)

and new media

(internet, etc.)

Live

Internet, satellite

and terrestrial

(AM/FM)

radio, etc.

MROs and GMRO

Labels

directly

Synch

rights,

etc.

Publishers

directly

Traditional media

(TV, film, etc.)

and new media

(internet, etc.)

Physical

products

(CDs, etc.)

Labels

directly

Reproduction and

distribution rights, and

public performance

rights for

digital interactive

Sound recordings

record labels/artists

Musical works

publishers/songwriters

Proposed Licensing Framework

Sound recordings

record labels/artists

Works

subject to

ASCAP/BMI

consent

decrees

Reproduction and distribution

rights, public performance

rights for digital interactive,

synch rights, etc.

Public

performance

rights

Public performance

rights for digital

noninteractive

Satellite radio

and preexisting

subscription

services

801(b)(1) factors

Willing buyer/

willing seller

Synch

rights, etc.

Reproduction and

distribution

(mechanical) rights

Works not

subject to

ASCAP/BMI

consent

decrees

Musical works

publishers/songwriters

Existing Ratesetting Framework

Internet radio

and new

subscription

services

“Reasonable”

rate

Rates negotiated in the

free market

Federal district court

(rate courts)

Market–oriented standard

(e.g., willing buyer/willing seller)

Mechanical and public

performance rights

subject to withdrawal,

synch rights, etc.

Reproduction and

distribution rights,

public performance rights

for digital interactive,

synch rights, etc.

Sound recordings

record labels/artists

Musical works

publishers/songwriters

Proposed Ratesetting Framework

Public performance rights for

noninteractive (internet,

satellite, and terrestrial

(AM/FM) radio, etc.)

Rates negotiated in the

free market

Reproduction and

distribution (mechanical)

and public performance

rights (MRO- and GMRO-

administered)

(as needed)

u.s. copyright office · library of congress · 101 independence avenue se · washington, dc 20559-6000 · www.copyright.gov